The price is right for optimization

Ted Hartnell has been researching price optimization, a strategy that converts big data into profits for retailers on online shopping platforms, since he was a graduate student.

Six years ago, the United States national left California's Silicon Valley and came to China. Three years later, he established Scientific Strategy (Shanghai) in the Shanghai Free Trade Zone.

"China has open e-commerce data and the world's most hyper-competitive e-commerce environment. We want to be part of it, and our technology can help online retailers compete and win," the 47-year-old said.

Basically, the company uses existing e-commerce data to calculate customers' willingness to pay for products.

"It's as though we can read consumers' minds and help a retailer charge as much as possible and still get customers to buy the product," Hartnell said, when he participated in the Shanghai Innovation Startup Competition on April 6.

"We don't want to hurt the market or start a price war with our clients' competitors. We don't steal competitors' customers. We just make more profit out of the same product and existing customers."

The big breakthrough was market simulation, artificial intelligence technology that quantifies consumer behavior by creating a software replica of a living market that can be tested and optimized.

When several related products feature in a portfolio, Hartnell's company uses a multiproduct pricing strategy, making small adjustments to related products in the price list, while keeping the average price roughly the same, he said.

"Our technology ensures that the higher profits from those customers willing to pay more is greater than the money lost when customers switch to cheaper products," he said.

The 10-person startup has provided services to 12 clients, including Coca Cola, Pepsi, Midea and Haier. In 2014, Pepsi's profits on the online shopping portal YHD rose by 6.7 percent thanks to Scientific Strategy's use of price optimization techniques, while its market share remained the same, he added.

Hartnell finds Shanghai's startup culture fascinating: "It's a lot like Silicon Valley, which is special because it provides financing and community, and is a great place to live. Shanghai has all of those things too."