Strategic Usage of Dynamic Pricing at Otto Group 

Developing a concept, testing and rolling out dynamic pricing in various entities of the Otto Group was one of the most exciting projects I have ever managed.  Lots of interesting insights into innovation, data, and human nature.

Dynamic pricing is essentially based on simple economic principles (Economics 101) but its practical implementation in e-commerce and brick and mortar retail has only become possible in the last decade.  Our project started at the whiteboard.  It felt great to sketch demand functions again, calculate their elasticities and solve optimization problems.  This exercise gave us a good idea for what we need.

For economists, dynamic pricing is nothing new or exciting.  Most of those who have received formal training in this discipline have learned how to estimate a demand function, how to calculate its elasticity, and how setup an objective function for whatever needs to be optimized (revenues, profit, or stock levels) and solve optimization problems.  So much about theory but is it possible to apply it in real markets, to real customers and with real products?

The answer is yes but it is rather tricky.  First, because demand functions are not stable in time.  They change and for some products they might even change rather often.  Demand functions might be different in the mornings and in the evenings.  They might be different on the weekdays and on weekends.  They may vary with seasons and of course with the weather.  What does it mean in practice?  To take full advantage of dynamic pricing, the underlying demand functions need to be constantly adjusted and the algorithm needs to look for temporal patters.  Only then it can suggest the right level of prices at the right time.

Second, dynamic pricing needs data, lots of data and ideally it needs it fast.  The algorithm needs to know, which products are bought and when.  It needs to know, how much of which product we have on stock and how fast we can reorder.  If we consider the number of products sold and the fact that each product version (e.g. size, color) can (at least theoretically) be optimized separately, we are talking about a mass of data.  Ideally, the algorithm also needs to have this data real-time or as close to it as possible.  The length and speed of the feedback loops between the market and the machine determines the potential of dynamic pricing in a particular application.

Third, dynamizing prices in any organization, in which they previously had been set by individuals is a huge change project.  It is man against the machine.  The larger the shop, the more volatile the demand, the less chance a man stands in this uneven battle.  But despite this obvious imbalance of processing power, it is ultimately a man that has to decide to make himself redundant and it is not so easy.  Maybe I will write a book about it some day.

So implementing dynamic pricing in organizations is typically an extra large project both in terms of the efforts as well as the potential benefits but the question is:  is it worth it?  It is very complex, it is rather expensive (most likely at least a six-digit number), and it ends up as a large scale organisational change project.  To overweight these factors the potential benefits must be huge!  … and they can be especially for the retailers whose scale of operations is large enough.  According to well informed sources, dynamic prices can increase revenue and profitability by 5-6%. This is a rather conservative estimate.  In its most extreme version, the impact of dynamic pricing can be even higher!  What does it mean?  Fully automated dynamic pricing is probably best suitable for large retailers or those selling a fast moving but limited assortment.  Although it is merely a rule of a thumb, I would expect that retailers with yearly revenues significantly below 100 million (dollar or euro) would have a hard time squeezing more benefits out of this technology than their investment necessary to implement it.

There are various solutions for smaller retailers and I promise to share some of my thoughts on this topic here at some point.

Dynamic pricing works and offers a powerful way of translating high level strategic objectives (growth vs. profitability vs. stock levels) on the most granular level of SKU prices.  It also implements brand strategies which are perfectly aligned with customers’ perception and their resulting price sensitivity.  It captures also the most relevant changes in company’s environment and immediately suggests appropriate  pricing adjustments.

All this magic happens, when we dare to trust the machines 😉

Customer Innovation Award aka Kunden-Innovationspreis 2016 for comdirect  

Bonus-Sparen is an excellent example of a complete innovation process.  It started as a wild idea, a vision, which then was conceptualized, pretotyped, tested, prototyped and launched to the market.  Although I still believe we could have done it sooner, we were the first bank in Germany, maybe even in Europe to launch a similar product.  We managed even to hit the market before fintechs, despite their great innovative capacity and development agility.

This innovation award (Kunden-Innovationspreis) is the best confirmation that with focus and dedication a great team can deliver great results, even at a bank.  I am very proud of my team and everyone else who supported us in turning our vision into this great product.

Who if not us, when if not now?

Source: Kunden-Innovationspreis 2016 u.a. für Comdirect Bank  | Markenartikel

Gehaltsverhandlung gewinnen! – Staufenbiel.de

A short interview with Staufenbiel a major German publisher of career related material on salary negotiation.  Unfortunately, only in German.

Die besten Tipps für die Gehaltsverhandlung: Experte Remigiusz Smolinski verrät die Tricks der Personaler und gibt Ratschläge zur Verhandlungsführung.

Source: Gehaltsverhandlung gewinnen! – Staufenbiel.de

HHL Appoints Honorary Professor for Negotiation

… so I became a professor. Who would have ever thought…  I often have to look back at picture below to remind myself that it was not a dream and did really happen.  On June 23, the Dean Prof. Dr. Andreas Pinkwart appointed me Honorary Professor for Negotiation at HHL Leipzig Graduate School of Management and it was one of the best days of my life.

Prof Dr Remigiusz Smolinski_re_Prof Dr Andreas Pinkwart_li_Foto HHL

Photo credit: HHL

HHL Dean Prof. Dr. Andreas Pinkwart says, “With Dr. Smolinski, an internationally renowned expert from the field of negotiation has joined us at HHL. He sustainably contributes to the success of our innovate125 Future Concept.”

Becoming a professor is kind of a big deal in Germany, where professor is not only a description of a function (someone who teaches at a university) but also a title that needs to be officially granted by an academic institution before it can used.  Interestingly enough, only academically appointed professors are allowed to carry the prefix prof. in front of their names.  Moreover, once granted, this prefix becomes a part of the name and can be carried also in official documents such as IDs, driver’s licenses and passports.

Many thanks to all those who believed in me and supported me on the way!  My special thanks go in the first place to:  my beautiful and loving wife Anna who has always unconditionally supported my passions and patiently tolerated their consequences including frequent separations and late night research, to Jan and Hanna whose smiles always brighten my days and help me fight for a better future, to all my academic mentors (Peter, Arnis, Jes, Arshad and many many more) who showed me the true meaning of science, helped me discover my academic passion and taught how to inspire the curiosity of students, and finally, to all my students who patiently allowed me to share my passion with them.  One person, however, could not celebrate with us this great moment…  Mom, I know you would be very proud to witness this day and I am so sorry God decided otherwise…  We all miss you and hope to join you in heaven one day…

I would never become who I am without your love and unconditional support.  Thank you so much!  It would never be possible without you!

 

Source: News & Events Details | HHL Europe, Germany

What advice would you give to the students of your high school?

Recently, I was invited to speak to the students of my high school nearly 20 years after my own graduation.  My first thought was wow!  It seemed not so long ago, that I patiently  sat in the auditorium and listened to others and now it was my turn.  It was not so much the teaching which in the meantime has become my daily bread.  It was much more a new role in a very familiar context from the past.  I was not sure, if was ready for it.  My second though was:  what do I tell them?

So I posted this question on Facebook and here are some of the great answers I have received from my network:

Everything your teachers told you of the importance of getting a great education and lifelong learning is true.

Alexander

Zacząłbym od tego żeby nie marnować szans i nie obawiać się zmian. Że ważna jest rodzina. Że problemów się nie uniknie i sztuką jest stawić im czoła i znaleźć rozwiązania. I że nigdy nie jest za późno, a dobro okazane wraca.

Krzysztof

Every decision is important in constructing you future (professional and personal). Sometimes you think is a little or not important decision… Nevertheless every decision have an impact on our future. So, in other words, you have the power to construct the future you dream.

Jhovanna

To become great in the job you first have to become a great human being. Values are more important than numbers.

Markus

“You are not special…”

Alexander

Know your BATNA, always have a good one and never overestimate it (especially in love).

Adrian

I would tell them that each of them is special in his or her own way and each of them should follow their dreams and not give up. Everyone has the chance to become successful. And successful does not only mean to be rich. It means to be happy with your life, with your family, job, social status. But it takes a lot of hard work to get there. So the kids must prepare for a struggle in order to achieve their dreams. Finally, I will give some examples of my classmates, who already (after 5 years) have done something of themselves. And I will finish by saying that even if they decide to dedicate themselves on career, work is not everything in life and there are much more valuable things.

Miroslav

Don’t grow up, it’s a trap 🙂

Abdul

Never base your career steps on external expectations but always on your own passion.

Frank

The learning has barely begun.

Will

Be wise on taking decisions. Don’t under or overestimate them. Each of them makes the path of what you are to be.

Gissela

Have fun as long as you can.

Eric

To live for them… make something of themselves… believe that they can do anything that they put their mind too. Not to let anyone tell them they can’t and to never back down. Stand up for what they believe in. To be the best that they can in what ever they choose.

Heather

I spent weeks thinking about what I should tell them.  What should be the message?  How do I get it through?  …and then the day came and on May 22 I had to start my presentation:

Presentation at my High School

It felt as strangely as expected, if not more.  First, because in all my academic career I barely had any opportunities to teach in Polish and it felt a bit rusty at times.  Second, I remembered it from my own experience that the last thing I wanted to pay attention to at that age was an advice from some smart asses my teachers asked me to listen.

But I accepted the invitation (and challenge) and there was no turning back. The title of my presentation was:  From Pablo to Paul: on Important Things.  I started by quoting Pablo Picasso, who supposedly said:

The meaning of life is to find your gift.  The purpose of life is to give it away.

My interpretation of the purpose and meaning of life, however, is slightly different:

The purpose of life is to search for your passion.  The meaning of life is share it with others.

Then I tried to explain what it means to search for passion and how important it is to stay curious, try new things and above of all to dare to have dreams.  I was very fortunate that my dreams, starting from the simplest ones such as finishing a high school, getting to a good university, doing a PhD, working with the best.  I also quoted Steve Jobs from his famous Stanford commencement speech:

The only way to do great work is to love what you do.  If you haven’t found it yet, keep looking.  Don’t settle. As with all matters of the hear, you’ll know when you find it.

I am blessed to have not one, not two but three passions I am very enthusiastic about:  volleyball, negotiation and innovations.  Passion alone, however, is not enough.  Nothing valuable in life is ever served on a silver plate and as pleasant it is to live the passion, the road to success leads through blood, sweat, and tears.

Finally, I showed Stephen Curry’s shoes and quoted some highlights from his career.

Stephen Curry shoes

The quote from the shoes:

I can do all things…

… has raised some controversy.  Some thought:  what an arogant jerk!  At least until we looked at the source:

I can do all things through Christ who strengthens me.

Philippians 4:14

Innovation Now! Die Rolle von Innovation für die Zukunft des Bankings

My presentation during  the Social Media Week Hamburg on 24.02.2016.  Unfortunately, only in German ;-(  A short summary for the busy ones:  disruptive innovations in banking are developed outside of the banking sector -> bank was yesterday?

The Negotiation Challenge 2016 in Vienna

It has been 10 years since we organized The Negotiation Challenge for the first time.  Back then not even in our wildest dreams did we imagine how well it would develop and where it would take us.  It has been an amazing journey!

On April 1-2, world’s greatest student negotiators met in Vienna and competed for the title of The Great Negotiator 2016.  16 teams from nearly all continents measured and compared their negotiation skills in an unofficial World Championship in Negotiation.

After 4 qualification rounds, we the final took place between American University Washington College of Law and…  we had a problem.  We had a tie for the second spot in the final between Reykjavik University and University of California, Hastings College of the Law.  According to our regulations, the second finalist had to be chosen randomly by a coin toss, and the coin chose…  the team representing UC Hastings.

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Whitney Geitz, Sara Fay Katz, and Danielle Ling Chang negotiating for UC Hastings.

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Laura daRosa, Colleen Wellington-Caban, and Jung Kim representing American University Washington College of Law.

The jury consisting of Prof. Dr. Sabine Köszegi, Steve Gates, CEO of The Gap Partnership, and Alexander von Reden, Partner at CMS decided that the title of  The Great Negotiators 2016 would go to American University Washington College of Law.  Congratulations to Laura, Colleen, and Jung!

The Negotiation Challenge 2016 was truly amazing and it would not have been possible without kind hospitality of our hosts Vienna Technical University with Prof. Dr. Sabine Köszegi and her team as well as Vienna University with with Prof. Dr. Rudolph Vetschera and his team.  We thank all our supporters and sponsors and look forward to meeting a new batch of world’s best student negotiators in Bogota next year!

Source: TNC 2016 – TNC | The Negotiation Challenge | International Negotiation Competition

If we do not believe in a better future, it will not happen – on innovations with innovation consultants

This interview is a bit older but hopefully not less relevant.  One of the most important characteristics of an innovation manager is his/her firm belief in a better future and a passion to make it happen.

Source: If we do not believe in a better future, it will not happen