Abstract

Demand uncertainty and high initial investments for IOT-based projects lead to analyzing various types of options, especially real options in project execution to decrease these uncertainties. In this study, we investigate the firms’ expected profits that resulted from appropriate chosen static and dynamic pricing strategies namely low-pricing, high-pricing, and contingent pricing combined with binomial decision lattices. Besides, the reciprocal influence between pricing strategies and IOT investment could provide useful insights for the firms that confront demand uncertainties in selling the firms’ products. We propose a model which is the integration of binomial decision lattices, which have been calculated by Real Option Super Lattice Solver 2017 software, and pricing policies under uncertainty. The results provide insights into what pricing strategies to choose based on the project’s real option value and the level of the firm uncertainty about the purchasing of the high-value consumer. Among the mentioned static and dynamic pricing strategies, high-pricing and contingent pricing strategies under different situations can be selected and expected profits of each of the strategies will be calculated and compared with each other. On the contrary, as the low-pricing strategy resulted in the lowest option value, it will not be scrutinized in this study. Experimental results show that if the IOT investment level and high-value consumer purchasing likelihood are high, the firm will implement the high-pricing strategy, otherwise choosing the contingent pricing due to the demand uncertainty would be appropriate.

Highlights

  • The Internet Of Things (IOT) implementation has been increased in previous years

  • Our research is intently based on three streams of literature: internet of things definitions and visions, pricing strategies under uncertainty, and real option valuation that is combined with binomial decision lattices

  • Various types of real options can be implemented during the project; since our case was an IOT-device expansion project, we comprehensively focused on option to expand in this study

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Summary

1- Introduction

The Internet Of Things (IOT) implementation has been increased in previous years. Various kinds of companies and organizations are using IOT as an essential part of their business because of creating value, bringing new opportunities to the firm, and realizing customer behaviors [1]. Binomial decision lattice analysis is an approach that is capable of implementing uncertainties in any period of the project and decides to continue or abandon that project and they could be applied in plenty of situations such as evaluating real and financial option prices [8, 9, 10]. Based on what has been explained, the main contribution of this paper is to propose a model that how IOT-based firms could achieve an expected profit for the company according to the chosen pricing decisions. Talebolfakhr, Ebrahimi & Rahmani, Using Decision Lattice Analysis to Model IOT based Companies Profit.

2- Literature Review
5- Conclusions
Full Text
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