A Simple Guide to Dynamic Pricing

Imagine you are considering taking a vacation but you are struggling to make the final decision. You check on the price for the air ticket, but you don’t complete the order. The following day, upon checking the price, you see a huge price difference. Unlike companies such as tow truck Chantilly va that have fairly consistent pricing, there are industries such as airlines, that are defined by dynamic pricing. Dynamic pricing, also known as surge pricing, or demand pricing, is a time-based pricing strategy where businesses adjust the prices for their offering to account for changing demand. An example is how airlines shift seat prices based on seat type, the number of remaining seats as well as the time until the flight takes off.

The dynamic pricing strategy is aimed at maximizing profit off time-based opportunity. It is a delicate practice of pinning down the right price to suit the right level of demand, such that it operates at multiple price points, and hopes at hitting one that is the best solution at any given moment. Dynamic pricing can only be leveraged by businesses that fulfill certain requirements. A business has to have the capacity to gauge how and when demand shifts. If a company has a reference point for or understanding how its broader market fluctuates, then it won’t be able to effectively adjust prices to suit the changing demand.

Choice of Customers

A business needs to have customers who are willing to pay nonstatic prices. Companies will not expect to successfully use dynamic pricing mode; if their potential customers have no interest in paying extra under certain conditions. If an industry’s pricing structures are thoroughly established with consumers who stick to them diligently, there will be no much room for that business to adjust its prices dynamically.

Market Power

A business will need to have sufficient market power when setting prices. Any company can only set prices at will if it has a significant place in its market for consumers to be receptive to that change. If a relatively small business in a crowded industry decides to adjust prices dynamically, it becomes very easy for that business to make losses as a result of customer churn.

Dynamic price strategy comes with its fair share of pros and cons. On the side of the pros, employees can be paid higher wages during busier times. Dynamic prices give you the flexibility to reward and incentivize your employees during busier stretches. By adjusting prices to suit any heightened demand, you can raise important funds to more freely adjust wages accordingly.

Additionally, you can also sell in downtimes. When the demand is lower, your sales will tend to follow the same. Downtimes will always occur for a specific reason. It can happen when people are simply less inclined to buy at some point. Dynamic pricing can also be useful in helping you salvage some business during those stretches. By lowering prices to suit a lower demand, you stand a better chance to appeal to a broader base of consumers who are willing to stand with your business.

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