Dynamic Pricing Chapter 4 PDF

Dynamic Pricing Chapter 4 MKT103 Definition of dynamic pricing Dynamic pricing is a pricing strategy where the price of a product or service is constantly adjusted. Definition of dynamic pricing These adjustments are based in real-time events influencing the price such as t...

Dynamic Pricing Chapter 4 MKT103 Definition of dynamic pricing Dynamic pricing is a pricing strategy where the price of a product or service is constantly adjusted. Definition of dynamic pricing These adjustments are based in real-time events influencing the price such as the following:  Market demand  Supply And other external factors such as the following:  Weather  Seasonality  Competition.  Goal of Dynamic Pricing The goal of dynamic pricing is to optimize revenue by charging the highest possible price customers are willing to pay while still maintaining a profitable margin. This pricing strategy is commonly used in industries such as:  Hospitality  Transportation  E-commerce  How Does Dynamic Pricing Work? Where the supply and demand for products or services can fluctuate rapidly. Dynamic pricing is often implemented using algorithms and data analytics to automatically adjust prices based on real-time market conditions.  Importance of Dynamic Pricing Dynamic pricing is crucial in today's market as it helps businesses stay competitive by adjusting prices in response to changes in market demand, supply, and other external factors.  In Comparison With Traditional Pricing Model  The traditional pricing model involves setting a fixed price for a product or service that remains constant over time.  This pricing model is often based on the cost of production plus a markup for profit.  In Comparison With Traditional Pricing Model  However, this approach does not take into account changes in market demand or supply, and may not be responsive to external factors such as competition or changes in consumer behavior.  As a result, traditional pricing models may not be as effective in today's dynamic and competitive market. Types of Dynamic Pricing  Dynamic pricing refers to the practice of adjusting the prices of goods or services in real-time, based on various factors such as demand, supply, seasonality, and competition. There are several types of dynamic pricing. Surge pricing:  This type of pricing is commonly used in the transportation industry, such as ride-sharing services or airlines. Surge pricing increases prices during peak periods of high demand, such as rush hour or holidays. Time-based pricing:  This pricing model adjusts prices based on the time of day or week. For example, movie theaters often have discounted prices for matinee showings during weekdays. Event-based pricing:  This type of pricing is based on the occurrence of a particular event, such as a concert or sports game. The prices are usually higher during such events due to increased demand. Seasonal pricing:  This pricing model adjusts prices based on the season or time of year. For example, hotels and resorts often charge higher prices during peak season or holidays. Inventory-based pricing:  This type of pricing is used when there is limited inventory of a particular product. As the inventory decreases, the price increases to reflect its scarcity. Yield management pricing:  This pricing model is commonly used in the hospitality and travel industries. It involves setting prices based on the anticipated demand, occupancy levels, and competitor prices, with the goal of maximizing revenue. Pros and Cons of Dynamic Pricing Pros: Maximizes revenue: Dynamic pricing can help businesses maximize their revenue by charging higher prices during peak periods of demand and lower prices during off-peak periods. Pros and Cons of Dynamic Pricing Competitive advantage: Dynamic pricing can give businesses a competitive advantage by allowing them to adjust their prices in response to changes in the market, such as the following:  Competitor pricing  Customer demand  Or external factors like weather conditions. Pros and Cons of Dynamic Pricing Better customer targeting: Dynamic pricing can allow businesses to target specific customer segments by offering discounts or promotions to specific groups of customers. Pros and Cons of Dynamic Pricing Increased sales: Dynamic pricing can help businesses increase sales by offering discounts during periods of low demand, which can attract price-sensitive customers Cons: Customer trust: Dynamic pricing can erode customer trust if customers perceive the prices as unfair or manipulative. Cons: Complexity:  Dynamic pricing can be more complex than fixed pricing, requiring sophisticated algorithms and data analysis to determine optimal pricing levels. Cons: Operational challenges:  Dynamic pricing can create operational challenges for businesses, such as managing inventory levels, forecasting demand, and adjusting prices in real-time. Cons: Legal issues:  Dynamic pricing can raise legal issues related to price discrimination, particularly if prices are based on customer characteristics such as race, gender, or age. What is Fixed Pricing?  Fixed pricing is a pricing strategy where the price of a product or service remains the same over a period of time, regardless of market conditions.  Dynamic Pricing Software  Functions Data collection: The software can collect data from various sources, including customer behavior, market trends, competitor pricing, and internal sales data. Analytics: Dynamic pricing software can analyze data to identify trends and patterns, such as demand peaks and valleys, and customer preferences Pricing rules: Based on data analysis, dynamic pricing software applies pricing rules to adjust the price of a product or service. This can include time-based pricing, demand-based pricing, or other strategies. Optimization: The software can optimize pricing based on real-time data, ensuring that prices are always aligned with demand and customer preferences. Dynamic Pricing Software Examples Pricefx: Pricefx is a pricing software vendor that provides dynamic pricing solutions for a variety of industries, including e-commerce, retail, and hospitality. Wiser Solutions: functions include pricing optimization, competitor analysis, and price monitoring. Its software can be integrated with e-commerce platforms such as Amazon, Walmart, and Shopify. Dynamic Pricing Software Examples Revionics: they provide retail, hospitality, and transportation. Its software includes features such as demand forecasting, price optimization, and competitor analysis. Zilliant: ts software includes features such as predictive pricing, pricing optimization, and deal management. Omnia Retail: they provide pricing optimization, competitor analysis, and real-time price adjustments. Its software can be integrated with platforms such as Google Shopping and Amazon. Dynamic Pricing in Real Life Scenario Dynamic pricing has been successfully implemented in various industries such as Hotels Airlines Ride-sharing services Concerts and events Sports events Amusement parks Online retail These industries have benefited from dynamic pricing by maximizing revenue, improving customer targeting, and responding to changes in demand and market conditions. Dynamic Pricing in Real Life Scenario – Variable of Interest Dynamic pricing is a strategy used by e-commerce businesses to adjust the prices of their products or services in real-time based on various factors Based on the following variables: -Demand -Competition -Customer behavior. Dynamic Pricing in Real Life Scenario - Variable of Interest Hotels and airlines use dynamic pricing to adjust their prices in real-time based on various factors such as:  Seasonality  Demand  Competition  Availability of slots. Dynamic Pricing in Real Life Scenario - Variable of Interest Retailers use dynamic pricing to adjust the prices of their products in real-time based on various factors such as:  Demand  Competition  Inventory levels  Customer behavior. Dynamic Pricing in Real Life Scenario - Variable of Interest Dynamic pricing is a strategy used by the sports and entertainment industries to adjust the price of tickets in real- time based on various factors such as:  Demand  Time of the event  Weather  Other Market conditions. Another Examples of Dynamic Pricing One example of dynamic pricing in healthcare is surge pricing, which is commonly used by:  Urgent care clinics  Hospitals  Other healthcare providers They are used during times of high demand, such as flu season or natural disasters. Another Examples of Dynamic Pricing  Another example of dynamic pricing is personalized pricing, where the cost of a service is tailored to an individual patient's medical history, age, and health status. Dynamic Pricing in Real Life Scenario - Variable of Interest Dynamic pricing in energy refers to the practice of adjusting the price of energy based on various factors such as:  Supply and demand  Time of day  Weather conditions. Dynamic Pricing in Real Life Scenario - Variable of Interest  One example of dynamic pricing in energy is time-of-use pricing, where energy prices are higher during peak demand periods, such as in the morning and evening, and lower during off-peak periods.  Another example of dynamic pricing is real-time pricing, where energy prices fluctuate based on current market conditions and grid demand. Ethics on Dynamic Pricing  Dynamic pricing can raise ethical concerns related to fairness and transparency.  Depending on the specific implementation of dynamic pricing, some consumers may feel that they are being unfairly charged more than others based on factors beyond their control, such as their income, location, or access to information  Fairness concerns can be addressed through transparent pricing practices and policies that ensure that all consumers are aware of how prices are determined and have equal access to pricing information.  This can help to ensure that pricing is based on legitimate factors, such as supply and demand, rather than discriminatory factors. Pricing Strategy: Group Work Submit it to: [email protected] Price Change Analysis 1. Each group will be assigned to a company that sells a specific product or service (e.g., 1. airline tickets, 2. concert tickets, 3. hotel rooms, 4. transportation, 5. healthcare, 6. energy, 7. equipment rentals and 8. sports game tickets). Explain how dynamic pricing applies to your respective industry These are some important set of conditions and describe their effects in your industry: Changes in demand during peak seasons Changes in demand during off-peak seasons) Changes in supply (e.g., limited availability of a product or service) Saturated Market or High Competition (e.g., the presence of other companies offering similar products or services) Untapped Market or Low Competition Market Conditions such economic downturn Market Condition such as inflation 2. Do these factors rapidly change the prices of your industry over time? If so, why? 3. What did you learn about the concept of dynamic pricing? Present this to the class at the next meeting.