Definition of "Preference Pricing"

Preference Pricing is a demand-led pricing model in which the complex, multi-faceted needs of buyers and sellers wishing to trade items are dynamically priced and matched in real-time within a technology- facilitated online market.

Also known as ‘the wishes of crowds’, it extends the well-known wisdom of crowds concept, with the stated preferences of multiple sellers and buyers contributing to a better final outcome for all parties involved.

Within a preference pricing model, a buyer states one or more sets of preferences in relation to an item (a product or service) which he is interested in purchasing. A preference set may include attributes which the buyer requires to be present in an item for it to be of interest to him, the price he is prepared to pay for an item having those attributes and an ordinal indication of his desire to buy an item at each of the preference sets he defined.

The seller of the items, typically assisted by technical solutions, evaluates the individual preference sets articulated by all buyers in the market against his own criteria for sale, resulting in a final outcome involving the sale of the available items. The seller may vary the means of arriving at this outcome, in order to balance his need to maximise sales revenue with buyers’ needs to achieve satisfaction with the preference set achieved, along any other factors he deems relevant.

In this way, preference pricing creates an efficient, modern market in which accurate pricing can be readily established and dynamically updated in response to the on-going changing needs of sellers and buyers.

Author: John O'Neill, Dublin, Ireland