Dynamic Pricing can be achieved in various ways but the key is to understand the problem first. Dynamic pricing has been around for years in the airline industry. In this article, we’re going to discuss three different approaches to dynamic pricing.
Using demand to achieve dynamic pricing can provide an advantage for tourism-related industries. We’ve spent the last several months understanding the motorcoach industry. This is an industry that has seasonal demands due to various factors such as holidays and weather changes. We discovered that demand for certain motorcoach buses changes throughout the day. This creates an opportunity for dynamic pricing based on demand. By tracking inventory, we were able to make changes to truck prices based on the bus inventory. Ultimately, this allows the company to maximize revenue for every tour bus on the road.
Dynamic pricing can be used to predict future trends for companies that are impacted by seasonal changes. The Vacation Rental industry has many factors that impact the industry. Therefore, depending on the location of the rentals, certain times of the year will play a part in the changes in price. Due to using historical data, you can predict the future booking activity of the vacation rentals. We recently completed a project that allows us to determine what future days will have the most booking activity. By having this information, we’re able to make adjustments to the price to maximize revenue opportunities.
While the first two approaches internal data, competitor pricing constantly changes based on the competitor’s price. The main goal of this pricing is to drop or increase pricing to grab more customers from the competition. Since competition pricing is more of a reactive strategy, you will be constantly waiting for competitors next move. Companies with larger budgets can use this strategy to price out smaller companies.
Developing a pricing strategy that’s effective depends on the type of business you’re running. Demand pricing will be an effective method will be especially relevant for companies with constant inventory changes. Predictive pricing will be most noteworthy to use for predicting changes for businesses with seasonal changes. Competition pricing most likely would be the least effective for smaller companies due to lower budgets. In conclusion, your dynamic pricing strategies will depend on the industry.
Alex Brooks is the founder and CEO of AE Brooks, LLC (d/b/a,Entreprov), a Seattle-based firm that builds custom predictive analytics and automation tools to enhance a company’s performance and decision making.