The COVID-19 pandemic has disrupted the global economy and created a highly volatile environment where the revenues of some industries are declining, and surging for others. In such a situation, businesses are having a hard time keeping a tab on costs and their capacity to cope with fluctuating market demands.
It is here that dynamic pricing strategy becomes relevant, because it makes use of multiple price tabs for a product, depending upon a number of factors, but mostly supply and demand. In this article, we will discuss more about dynamic pricing, its types and its implementation in industries. We will also talk about how you can master dynamic pricing and become a Chief Business Officer in a reputed firm.
What is Dynamic Adaptive Pricing?
As mentioned above, dynamic pricing is flexible and is set according to the demands of the market and other crucial information about consumers. On the other hand, adaptive pricing is about adjusting the price to meet certain demands in order to make a profit even at the time of less demand.
While the definitions might seem largely similar, the difference lies in the fact that adaptive pricing is broader in scope and the fixed pricing may change only at certain times as opposed to dynamic pricing where the pricings can change any number of times, and are slightly volatile. Combining the two leads to dynamic adaptive pricing, that is, adjusting prices as flexibly as possible, to ensure maximum profit at all times.
Types of Dynamic Adaptive Pricing
The absence of legal implications surrounding dynamic adaptive pricing has led to multiple businesses adopting this pricing strategy, bringing out several varieties and methods of marking the prices. Some of these have been listed below:
● Group-oriented Dynamic Adaptive Pricing
As the name itself indicates, this kind of pricing strategy is implemented differently for different groups, the differentiating factors being the nature of the device used, location, and demographic data. Some targeted demographic groups, such as public workers and senior citizens are also offered discounts on some products. Price sensitivity becomes a crucial factor here, and consequently, promotional offers are given based on price elasticity. For instance, the price of a commodity searched from an expensive smartphone at a high-end location will be marked at a much higher rate.
● Time-based Dynamic Adaptive Pricing
Much wider in scope than group-based dynamic adaptive pricing, this pricing method increases or decreases in scope with respect to time and demand. In industries where the demand for a product or service fluctuates throughout the day, the prices can vary accordingly. However, the demand can be controlled by the companies by offering incentives to encourage interest in a product, such as lowering the cab fares for hire services at night or offering discounts on obsolete, or last-season stocks to clear them out.
● Cost-plus Dynamic Adaptive Pricing
When a business adopts a cost-plus pricing method, it sells the commodity for a higher price than the original unit cost. One of the most common pricing strategies, it has been tried and tested and proven to be easily implemented and effective as well. One simply needs to add their desired profit margin to the cost price to determine the selling price in this method. Manufacturing industries heavily rely on cost-plus dynamic adaptive pricing because the cost for the produced goods usually has a fixed rate, making it easier for them to decide the revenue rate.
● Competitor-based Dynamic Adaptive Pricing
In this kind of costing strategy, businesses mark the price of a product or service depending upon its competitive market value, that is, what the competitors are charging for the same product. Any kind of marketing competition can fall under the ambit of this dynamic adaptive pricing strategy, from product design to targeting niches with low competition.
● Value-based Dynamic Adaptive Pricing
Also known as price elasticity, this pricing strategy depends upon the customer’s perception of the commodity’s worth. It can be called “customer-based pricing” as well because the final markup of the product or service is based on how much the target consumer base is willing to spend for the said product. It gives the seller an external perspective on the market and helps establish trust with customers through constant communication with them.
● Price Skimming
Price skimming is a kind of dynamic adaptive pricing method that charges the highest price acceptable in the market, also known as “maximum product entry price”, and then gradually decreases the price over time. It is called skimming because in this strategy, the seller “skims” off the topmost market segment of the target customer base, meeting their requirements while also making a maximum profit in the very beginning. Once the highest strata of buyers have been secured, the company can now penetrate the lower rungs of the customer base, especially the ones looking for budget-friendly products.
● Bundle Pricing
In the bundle pricing strategy, as the name suggests, the seller categorises the products into groups based on a specific factor, and sells the entire group for a fixed price. A very popular strategy for retail stores and e-commerce sites, bundle pricing not only offers a higher value for the price but also boosts the sales of the products.
● Penetration Pricing
As the name suggests, this kind of dynamic adaptive pricing strategy is adopted by companies trying to enter highly competitive markets and gain a foothold there. It is primarily an acquisition strategy that companies use to lure customers away from their competitors by offering to sell at much lower than the usual market price, thus gaining a substantial market share.
Some Instances of Dynamic Adaptive Pricing
Ride-Sharing Services: In the app cab services, the prices might have a fixed rate, but they also vary according to weather and rush hours. Companies often make profits from these environmental conditions or special slots.
Flights: While flights usually have a few restricted price points, dynamic pricing strategy is adopted for flights booked at the last moment.
Hotels and Bed and Breakfasts(BnBs): More revenue is generated by the hospitality industry when they use dynamic adaptive pricing during busy seasons, especially during holidays and around events.
E-commerce shops: Many e-commerce companies spontaneously adjust their prices in order to gain an edge over their rivals, stay afloat during certain seasons, or respond to market rates.
Learning how to accurately implement dynamic adaptive pricing is a major skill one has to master in order to become a Chief Business Officer (CBO). To get hands-on training in pricing strategies, and other such marketing and sales strategies, join Imarticus Learning’s Executive Management Programme in Sales and Marketing Leadership, offered in collaboration with the Indian Institute of Management, Lucknow.
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