Dynamic pricing

5 Key excerpts on "Dynamic pricing"

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  eBook - PDF

  MKTG

  • Charles Lamb, Joe Hair, Carl McDaniel, , Charles Lamb, Charles Lamb, Joe Hair, Carl McDaniel(Authors)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  The strat- egy, using a different twist on the local–global mind- set, focused not on products but on support for local causes. The firm increased revenue by 14.5%. 2 ● ● Customer satisfaction: Researchers have found a strong relationship between overall customer sat- isfaction and willingness to tolerate a price increase (inelastic demand). 3 Specifically, they showed that a 1 percent increase in consumer satisfaction should be associated with a 0.06 percent decrease in price sensitivity. 4 Porsche owners tend to be very satisfied with their vehicles and willingly pay for new vehicles despite price increases. Singapore Airlines can slight- ly increase prices because it is the perennial winner of the “world’s best airline” award. 5 19-4 Dynamic pricing AND THE GROWING USE OF ARTIFICIAL INTELLIGENCE IN SETTING PRICES When competitive pressures are high, a company must know when it should raise or lower prices to maximize its revenues. More and more companies are turning to Dynamic pricing to help adjust prices. Although Dynamic pricing originated with airlines, which are limited by fixed capacity, the new thinking is that Dynamic pricing can be used in any industry in which demand or supply fluctuates. Uber, for example, uses Dynamic pricing by raising fares when more people need rides and vice versa. This is referred to as surge pricing. Dynamic pricing is the ability to adjust prices very quickly, often in real time using software programs. This technology has come to the aid of brick-and-mortar re- tailers, enabling them to compete more effectively with online alternatives. Down a shot of tequila at The Blind Burro, and the second round may cost you more. Or less. It all depends on what everyone else is drinking. Tequila prices at the San Diego bar and restaurant change every five min- utes, based on demand. If more people order one tequila brand, the price of another might drop.

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  eBook - ePub

  Economic Value and Revenue Management Systems

  An Integrated Business Management Model

  • Alessandro Capocchi(Author)
  • 2018(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  2005 : 320).

  Dynamic pricing Strategies

  With reference to different production sectors, Dynamic pricing strategies include:

  • Markdown strategies (very common among commercial companies)
  • Discount pricing strategies (very popular among airlines)
  • Consumer-packaged goods promotions

  Markdown strategies relate to products/services whose sales/supply cycle has a temporally defined start and end, and involve reducing prices as the end of the sales cycle or season approaches. These strategies help a product company to deplete its inventory and a service company to avoid unsold service units. Markdown strategies are mainly employed by commercial companies in relation to selling products/services subject to (1) decay, (2) high technological innovation , and (3) high seasonality.

  These are very widespread policies, despite the difficulty for a company of predicting at the beginning of the sales cycle which products/services will be more widespread on the market. Using these strategies is necessitated by companies’ desire to eliminate inventories or unsold units.

  Lacking knowledge of which products/services will be more successful on the market, the company tends to determine very high-price levels at the beginning of the sales cycle or the season, guided in any event by expectations of profitability. Over time , the products/services that are less successful on the market have their prices progressively reduced. The reductions can also reach a high incidence compared to the starting price, as the end of the sales cycle or season becomes imminent (Talluri and Van Ryzin 2004

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  eBook - ePub

  Impact Pricing

  Your Blueprint for Driving Profits

  • Mark Stiving(Author)
  • 2011(Publication Date)
  • Entrepreneur Press

    (Publisher)

  Part Four

  Pricing Dynamics: Prepare for Change

  Cutting prices is usually insanity if the competition can go as low as you can.

  —Michael Porter

  dp n="163" folio="142" ?dp n="164" folio="143" ? Passage contains an image

  Chapter 15

  Introduction to Pricing Dynamics: Customer Expectations

  Don’t manage—lead change before you have to.

  —Jack Welch

  Key Concepts

  Customers hate price increases. Avoid them.

  Choose between EDLP and Hi-Lo, even if you aren’t a retailer.

  Assuming Hi-Lo, be sure to set a higher list price.

  This chapter was originally titled Introduction to Dynamic pricing, but the phrase “Dynamic pricing” is gaining a specific meaning of its own. The popular business press now uses Dynamic pricing to mean rapidly changing prices based on yield management and variance in demand. For example, in April 2011 there were headlines like “Ticketmaster to Implement Dynamic pricing System.”

  The fundamental concepts behind this definition of Dynamic pricing were covered in the sections on segmentation and versioning. This chapter focuses on changing prices, but at a slower rate than implied by the literature. Hence, I’ve change the title of this chapter to “Pricing Dynamics,” an accurate term to describe what is really covered.

  Customers Despise Price Increases

  Prices change. Actually, everything around pricing changes, and that often requires price changes. Your costs change. The price of oil is volatile, so transportation costs change. Competitors enter and exit the market. Customer needs and tastes change over time. Distribution technologies change. Your own product portfolio grows. Technology continues to advance. And of course the economy goes from boom times to bust and back. Every one of these changes can motivate you to raise or lower your prices.

  No matter the cause, the single rule that should drive your thinking about changing prices is this: Customers hate price increases. They like discounts, but they hate having to pay more.

  Imagine you’re working with a contractor to paint your house. As the job nears completion, the contractor says to you, “We didn’t need as much paint as I estimated. I’ll knock $100 off the bill.” You feel pretty good about that. What if instead he said, “We used more paint than I estimated. I’ve added $100 to your bill.” You would probably be ticked off. Compare the amount of pleasure from the $100 windfall to the amount of pain from the $100 price increase. If you’re like most people, the level of pain exceeds the level of pleasure.

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  eBook - ePub

  Management of Marketing

  • Paul Reynolds, Geoff Lancaster(Authors)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  Marketing management should devise a pricing strategy that is compatible with strategies attached to other elements of the marketing mix. It is not always possible to set a price and apply this rigidly to all customers in all market situations. A pricing strategy denotes how a company will price its products at particular periods of time or particular market conditions. Demand-orientated pricing sets a base price that the company must endeavour to achieve, but it assumes that price be modified in line with changes in demand. Manufacturers must realise that customers are not the same. Some will purchase greater quantities than others, or be situated in areas that are more costly to reach.

  If a target-return-on-investment price is set, this may only be appropriate during the maturity stage of the product life cycle that was explained in the last chapter. During introduction or growth, it is often necessary to employ a pricing strategy that will enable the target return to be achieved over the long term.

  A company’s ability and willingness to formulate pricing strategies is a reflection of its willingness to adapt and modify price according to the needs of customers and market conditions.

  7.6.1 Discounting

  The discount structure a company employs is a major element of pricing strategy and an indicator of the firm’s flexibility. If customers buy products in large quantities, they may reasonably expect to be charged a lower price than that charged to smaller purchasers. The seller may also offer discounts voluntarily in order to encourage large orders that facilitate economies of scale and assist effective production planning. Such quantity-related discounts can refer to individual orders or be based on an estimated off-take that is planned over a given period. In certain markets, price discounting is important. Day and Ryans (1988 ) say that if used with imagination and creativity they can provide a firm with a strong competitive advantage.

  Manufacturers can offer discounts to encourage sales of a new product or accelerate demand for a product whose stocks are high, owing to seasonal or cyclical demand variations. In the production context, it is desirable that a constant rate of output is maintained. If market conditions are not conducive to this, a price modification by means of discounting might encourage sales sufficiently to counteract variations in levels of demand.

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  Visionary Pricing

  Reflections and Advances in Honor of Dan Nimer

  • Gerald E. Smith, Arch G. Woodside(Authors)
  • 2012(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  101 Incorporating Competitive Strategy in Pricing Strategy EMERGENT PRICING STRATEGY Gerald E. Smith ABSTRACT Advances in technology, operations research, and data driven pricing and marketing are leading pricing strategy into new and untested waters toward Dynamic pricing, and variable pricing strategies, which ultimately require changes in how we view pricing strategy. The dominant view of pricing strategy is that pricing goals, objectives, and strategies should be formulated a priori, and should be consistent with marketing and corpo-rate strategies deliberate pricing strategy. This chapter argues that firms need to develop new strategic pricing skills that lead to more improvisational, innovative, or adaptive pricing strategies. I call this type of price strategy-making emergent pricing strategy. Innovative pricing strategies that the organization judges, or senses to be effective, are repeated, shared, expanded, and refined into successful pricing patterns that, over time and across situations, become pricing strategy. Thus, rather than specifically designing pricing strategy to achieve a goal, here the organization acts upon a price innovation that seems to make sense for this customer, this market segment, this setting, and this situation, then interprets the outcomes, signals, and reactions that seem to flow from the pricing action, and shares and encourages adoption Visionary Pricing: Reflections and Advances in Honor of Dan Nimer Advances in Business Marketing & Purchasing, Volume 19, 103 126 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2012)0000019011 103 and adaption by others in the organization. Emergent pricing strategy is particularly useful in unstable, turbulent, and complex product and mar-ket environments in which price-sensitive buyers wield significant power and influence.

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