“The Pitfalls of Pricing Algorithms” by Bertini and Koenigsberg

Subject: Industry
Pages: 4
Words: 1112
Reading time:
4 min
Study level: College

Today, people are able to find a variety of services and buy products as per their needs, resources, and interests. Companies have to compete regularly to demonstrate their professionalism, quality, and efficiency. Thus, a number of business models and assessment approaches are created to cover current requirements and meet all the necessary standards. The evaluation of economic, social, and even ecological values contributes to a better understanding of workplace choices (Schneider and Clauß, 2020, p. 385). Scholars and researchers continue developing their studies about how to choose the best approach, recognize critical areas in business, or implement the most appropriate ideas. In this paper, the analysis of the article “The Pitfalls of Pricing Algorithms” by Bertini and Koenigsberg will be offered as a part of the investigation of several business models in the car parking industry. The chosen article introduces several models based on pricing algorithms that could be used for improving the situation in the report.

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Modern organizations face multiple choices in their intention to accomplish their goals and become the brightest representatives in their fields. Technological, economic, and social progress have different effects on firms, but, in most cases, leaders take the same step to complete their missions. They have to choose a business model and analyze what kind of business to develop. In the report, several business models are introduced to promote car parking services in Saudi Arabia and advance parking management, relying on the examples of three different organizations. Still, the task is not only to make the right model choice but to understand what determines the business quality and other organizational issues.

The article under analysis does not focus on business models directly, but it discusses the conditions under which significant business decisions are made. Bertini and Koenigsberg (2021, p. 75) conducted a study about the implementation of pricing algorithms as another model to help companies achieve their organizational and monetary values. There are several examples of how organizations create their unique models: Root Insurance and its customer relationship model, IKEA and its distance-based algorithm to reward customers, or United Airlines and its award travel model. In most cases, it is expected that pricing algorithms focus on numbers, quantitative optimization, and regional or global statistics. However, Bertini and Koenigsberg (2021, p. 83) proved that pricing algorithms could also be effective for communication, customer satisfaction, and behavioral choices. In other words, the article teaches that many financial aspects in business development are closely related to social issues and human relationships.

The article consists of several logical parts with the help of which the authors explain why pricing algorithms matter in business modeling. First, the discussion of the London Bridge case and Uber pricing changes was developed to show how companies change their policies. Second, it was necessary to examine pricing algorithms and their worth for different organizations. Despite the fact that the offered model touches upon financial aspects and monetary improvements, the authors point out that algorithmic pricing could have a psychological impact on companies and customers. Using the example of Root Company, Bertini and Koenigsberg (2021, p. 78) investigate the influence of technology and the possibility to deepen the relationships between the staff and clients. However, technological progress is hard to predict and impossible to stop. Therefore, companies should define the connection between what technologies do to people and vice versa.

As a result, several recommendations to manage pricing algorithms and organizational changes were offered. The first recommendation covered the possibility to apply not just technical but organizational and psychological aspects of services in a business model. Companies like IKEA appreciate their customers from different parts of the world and support distant purchasing (Bertini and Koenigsberg, 2021, p. 79). The offered distance-based algorithm helps generate prices with supply and demand and allows customers to buy products at the right moment. The second recommendation was about the responsibility of humans to control algorithms and make independent decisions. The example of United Airlines was chosen to demonstrate how rewards for customers, not employees, advance service development in a specific area (Bertini and Koenigsberg, 2021, p. 80). Despite the existing algorithms and strategies, companies should never forget that decision-making is always about humans, not formulas or technologies.

In the report, the authors try to introduce a business model that offers a seamless experience for stakeholders, satisfaction for users, and technical advancement. The third recommendation by Bertini and Koenigsberg (2021, p. 81) contributes to this idea defining three critical processes like experimentation, monitoring, and strategy. First, organizations have to test prices and measure customer value. Secondly, new performance indicators that ensure price changes have to be fair and clear, which is possible with a thorough analysis. Finally, any algorithm, as well as model, is based on a specific strategy that combines positioning, branding, development, and other processes to explain price changes. The last recommendation teaches that even the most effective rule, standard, or model has to be changed one day. Thus, people should not be afraid to modify their working processes and ideas.

All these recommendations may be defined as subjective because they are taken from specific organizations that have their resources and achievements at the moment. As a result, the same steps can hardly be applied to new companies with limited sources and inexperienced teams. However, in this situation, the advice and information of the article is a solid contribution to how business in any area may be arranged. Bertini and Koenigsberg (2021, p. 83) teach that most algorithms and organizational approaches focus on customers, their needs, and expectations. There are many technical issues that cannot be ignored because they facilitate management and monitoring. Still, communication and cooperation are also integral for developing trustful and respectful relationships at the workplace and in the market. Therefore, it is correct to apply psychological, organizational, and technical knowledge in creating business models.

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In conclusion, the analysis of the chosen business article from Harvard Business Review is not only a chance to learn something new but a good opportunity to improve the current background for the study. The report about business models shows that each company has enough experience and resources to develop unique strategies to achieve the desired success and goals. The article can also be applied to the situation and improve the steps that companies should take. The examples from this academic source prove the importance of combining psychological and technical aspects of work, demonstrate how to contact people, and explain the inevitability of change. There are many ways of how to create a new business model or improve the already offered strategy, and the article by Bertini and Koenigsberg has to be added to the list of credible sources for analysis.

Reference List

Bertini, M. and Koenigsberg, O. (2021) ‘The pitfalls of pricing algorithms: be mindful of how they can hurt your brand’, Harvard Business Review, 99(5), pp. 74-83.

Schneider, S. and Clauß, T. (2020) ‘Business models for sustainability: choices and consequences’, Organization & Environment, 33(3), pp. 384-407.