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Adaptive Pricing with Machine Intelligence

Evan Prodromou
Evan Prodromou

This document discusses using machine learning and fuzzy logic for adaptive pricing in e-commerce. It describes fuzzy logic as an option for adaptive pricing that uses intuitive business rules rather than large datasets. Fuzzy logic allows pricing to vary smoothly based on multiple factors like product popularity, user recency, and market penetration. The document provides examples of how these input factors could map to an output discount percentage using fuzzy rules and explains how fuzzy logic could integrate with store software for adaptive pricing.

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A D A P T I V E P R I C I N G W I T H M A C H I N E I N T E L L I G E N C E MTL+ECOMMERCE
E VA N P R O D R O M O U Founder & CTO, Fuzzy.io Former CTO, Breather Founder, StatusNet Founder, Wikitravel
W H O I S T H I S TA L K F O R ? Involved in e-commerce products or services on the Web or mobile Technical understanding Decision-making power
W H AT I S A D A P T I V E P R I C I N G ? Changing the price of a product Based on the situation User attributes Product attributes Business attributes
W H Y A D A P T I V E P R I C I N G ? Profit maximization Competition Many large retailers use it Guide user behaviour Activation Retention Referral
R I S K S Too high = dont convert Too low = cut into margin May be worthwhile to activate a customer Perception of fairness
I M P L E M E N TAT I O N O P T I O N S Procedural code Markets Machine learning Fuzzy logic
IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE
P R O B L E M S W I T H P R O C E D U R A L C O D E Gets very complicated with multiple inputs Brittle Hard to debug Hard to maintain Thresholds
Adaptive Pricing with Machine Intelligence
M A R K E T- B A S E D S O L U T I O N S Require a market Require something close to real-time bidding Require fungible product or service One seller is equivalent to another
Adaptive Pricing with Machine Intelligence
M A C H I N E L E A R N I N G Requires corpus of training data May not be collected May be difficult to experiment Requires training process Unintuitive results Harder to audit Staff are expensive
F U Z Z Y L O G I C Fuzzy sets Intuitive categories like old, new, good, warm Degrees of membership 0 to 100% Real-world wisdom IF userAge IS new THEN discount IS high
F U Z Z Y L O G I C F O R A D A P T I V E P R I C I N G Pros Uses explicit business rules Doesnt require large training corpus Smoothly-varying output no discontinuities with thresholds Handles contradictions well Adding and removing inputs well Missing data works well Easier to audit
F U Z Z Y L O G I C F O R A D A P T I V E P R I C I N G Cons Requires numerical inputs
D I S C O U N T Not a fixed price Can use the same agent for multiple products 0% = full price, 100% = free Bounded to prevent outrageous prices
W H AT FA C T O R S C A N A F F E C T P R I C E ?
P R O D U C T P O P U L A R I T Y Sales/week Smoothes over variations by day-of-week Ideally, pre-calculated for previous week
C AT E G O RY P O P U L A R I T Y Similar to product popularity, but for product category
S I T E P E R F O R M A N C E Site-wide sales for the week Can be in dollars, or # of sales Very site-specific
S A L E S P E R H O U R O F W E E K Discrepancies between weekday/ weekend, night/day
S A L E S P E R W E E K O F Y E A R Especially for seasonal products Best for established stores At least one year of sales!
U S E R R E C E N C Y How long ago did the user sign up?
U S E R A C T I VAT I O N Number of sales or dollars
M A R K E T P E N E T R AT I O N For geographical markets In number/million
O T H E R FA C T O R S Influencer Number of followers on Twitter Number of friends on Facebook Social network penetration Percentage of followers on Twitter who have joined Percentage of friends on Facebook who have joined
R U L E S Map input factors to output discount Usually linear Occasionally inversely linear More complex rules possible
I N T E G R AT I N G W I T H S T O R E S O F T WA R E Using an SDK Or a plugin
F U Z Z Y L E A R N I N G In production Feedback loop based on profit margin on the sale 0% = no conversion Varies fuzzy set boundaries Varies weights of fuzzy rules
T H A N K S Evan Prodromou evan@fuzzy.io https://fuzzy.io/

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Adaptive Pricing with Machine Intelligence

  • 1. A D A P T I V E P R I C I N G W I T H M A C H I N E I N T E L L I G E N C E MTL+ECOMMERCE
  • 2. E VA N P R O D R O M O U Founder & CTO, Fuzzy.io Former CTO, Breather Founder, StatusNet Founder, Wikitravel
  • 3. W H O I S T H I S TA L K F O R ? Involved in e-commerce products or services on the Web or mobile Technical understanding Decision-making power
  • 4. W H AT I S A D A P T I V E P R I C I N G ? Changing the price of a product Based on the situation User attributes Product attributes Business attributes
  • 5. W H Y A D A P T I V E P R I C I N G ? Profit maximization Competition Many large retailers use it Guide user behaviour Activation Retention Referral
  • 6. R I S K S Too high = dont convert Too low = cut into margin May be worthwhile to activate a customer Perception of fairness
  • 7. I M P L E M E N TAT I O N O P T I O N S Procedural code Markets Machine learning Fuzzy logic
  • 8. IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSEIF ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE IF THEN ELSE
  • 9. P R O B L E M S W I T H P R O C E D U R A L C O D E Gets very complicated with multiple inputs Brittle Hard to debug Hard to maintain Thresholds
  • 11. M A R K E T- B A S E D S O L U T I O N S Require a market Require something close to real-time bidding Require fungible product or service One seller is equivalent to another
  • 13. M A C H I N E L E A R N I N G Requires corpus of training data May not be collected May be difficult to experiment Requires training process Unintuitive results Harder to audit Staff are expensive
  • 14. F U Z Z Y L O G I C Fuzzy sets Intuitive categories like old, new, good, warm Degrees of membership 0 to 100% Real-world wisdom IF userAge IS new THEN discount IS high
  • 15. F U Z Z Y L O G I C F O R A D A P T I V E P R I C I N G Pros Uses explicit business rules Doesnt require large training corpus Smoothly-varying output no discontinuities with thresholds Handles contradictions well Adding and removing inputs well Missing data works well Easier to audit
  • 16. F U Z Z Y L O G I C F O R A D A P T I V E P R I C I N G Cons Requires numerical inputs
  • 17. D I S C O U N T Not a fixed price Can use the same agent for multiple products 0% = full price, 100% = free Bounded to prevent outrageous prices
  • 18. W H AT FA C T O R S C A N A F F E C T P R I C E ?
  • 19. P R O D U C T P O P U L A R I T Y Sales/week Smoothes over variations by day-of-week Ideally, pre-calculated for previous week
  • 20. C AT E G O RY P O P U L A R I T Y Similar to product popularity, but for product category
  • 21. S I T E P E R F O R M A N C E Site-wide sales for the week Can be in dollars, or # of sales Very site-specific
  • 22. S A L E S P E R H O U R O F W E E K Discrepancies between weekday/ weekend, night/day
  • 23. S A L E S P E R W E E K O F Y E A R Especially for seasonal products Best for established stores At least one year of sales!
  • 24. U S E R R E C E N C Y How long ago did the user sign up?
  • 25. U S E R A C T I VAT I O N Number of sales or dollars
  • 26. M A R K E T P E N E T R AT I O N For geographical markets In number/million
  • 27. O T H E R FA C T O R S Influencer Number of followers on Twitter Number of friends on Facebook Social network penetration Percentage of followers on Twitter who have joined Percentage of friends on Facebook who have joined
  • 28. R U L E S Map input factors to output discount Usually linear Occasionally inversely linear More complex rules possible
  • 29. I N T E G R AT I N G W I T H S T O R E S O F T WA R E Using an SDK Or a plugin
  • 30. F U Z Z Y L E A R N I N G In production Feedback loop based on profit margin on the sale 0% = no conversion Varies fuzzy set boundaries Varies weights of fuzzy rules
  • 31. T H A N K S Evan Prodromou evan@fuzzy.io https://fuzzy.io/