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Price Optimization with Generalized Additive Model (GAM)
Use PyGAM to discover the price that can maximize your revenue.
Introduction
The purpose of a business is — at the end of the day — to make money and profit. To fulfill that purpose, pricing is at the core of the problem, after all, charging correctly for your products and/or services may increase the profit.
I believe many companies have this common question:
What is the optimum price for this product?
I say that because we know that we don’t like to pay too much for anything. On the other hand, when something that is supposedly expensive (like a car or a house) is too cheap, we immediately get suspicious and don’t move forward with the business. Not until we are sure we are not being scammed, at least.
So, notice how complex pricing a product can be. If we price too high, we sell less. If we price too low, we may also experience poor performance in sales. This behavior is related to the effect called price elasticity.
Price elasticity is a measure of how responsive the demand for a product is to changes in its price.
In this tutorial, we will learn an approach to model prices using Generalized…
