The dynamic pricing strategy is the process of changing the prices according to the circumstances of the market. In this process, the price is never being firmly set and it entirely depends on the market conditions. Often called as the real time pricing, the price can increase due to the rise in demand.
Applications of Dynamic Pricing
There can be various situations when this particular strategy can be applied. Now let us go through few of the types:
- Service Time: If service time is very fast, the price can be increased in the dynamic pricing policy. For example, the same day delivery of the dry cleaned clothes will charge you more than delivery after 2 days. Printing services at late hours can charge you more than the regular price. This strategy can help in increasing the profit margin by increasing the customer loyalty.
- Segmented Pricing: Some customers may be willing to pay more for the customized services. For example, some businessmen may be ready to pay more for the airline tickets for flying in the mid-week. Some customers may pay more for faster services, more features or improved quality. A product can possess high price with warranty and low price without it.
- Time Of Purchase: The pricing strategies may offer the customers different prices at different times. For example, the airline companies use this policy very frequently. The ticket rates for low demand games can be cheaper than the high demand games.
- Peak User Pricing: This strategy is mainly used in the transportation business. The rail and airway companies can charge high prices during the rush hours from Monday to Friday.
- Changing Conditions: In different market conditions, different prices can be set. For example, the profits can be increased by lowering the prices during low demand and increasing the price with the rise in demand.
Drawbacks of Dynamic Pricing
Though there are various applications and benefits of this pricing strategy, you can find some drawbacks also:
- Increased Competition: When there is less amount of loyalty within the customers, with the increased competition, they may move to another company with better rates without any hesitation.
- Irritation Of Customers: If the customers can realize that there is a price discrimination strategy, they will surely get irritated. For example, an airline ticket may be sold through the travel agency with discounts at $500 and the same ticket may cost $600 for the normal buyers. When both the passengers discuss their rates, the high priced passenger may get highly irritated.
- Less Loyal Customers: When the customers get irritated with the price discrimination strategy, the brand loyalty of the company may get hampered. If the customer realizes that the company is offering dynamic pricing strategy, they will surely switch to the competitors for better rates.
Dynamic pricing strategy is entirely legal in nature. The improved personalization services can earn a huge amount of profit with the help of this strategy. It is therefore gradually gaining grounds to the business owners by replacing the traditional fixed pricing method.