Dynamic pricing promises major change and is already being
used by a variety of brands says a new report.
Brands are waking up to the possibility of dynamic pricing
and driving rich rewards from doing so finds the new Dynamic
and Personalized Pricing report from EyeforTravel, which is free
to download now. Dynamic pricing, the process of using data to more
accurately segment consumers and automatically offer them differentiated prices
based on various factors, is being deployed from both within and outside the
travel industry. Early adopters include many players in the airline industry,
Airbnb and Amazon. So, with so many waking up to dynamic pricing, what are some
of these early adopters doing and what are the main lessons?
Airbnb has already built in sophisticated dynamic pricing
algorithms to those hosts that select to use them. Property owners can choose
to set a price manually or utilize the dynamic pricing algorithms provided by
Airbnb to automatically determine the cost per night. The three key factors
involved in the automated pricing of Airbnb space are seasonality, day of the
week and special events. On a broader level, the company reputedly works across
more than 70 categories to create the price. It lists the following as some of
those criteria:
•
Lead-times
•
Search behaviors both within and outside the
listings market, with prices rising as search popularity increases
•
Seasonality
•
The popularity of the listing at any given time,
including how many users view and their dwell time on the listing
•
Listing amenities, such as WiFi, air
conditioning or a pool
•
Number of bedrooms and bathrooms.
•
Prices paid for bookings in the past with
adjustments made if host-set prices differentiate from the algorithm
•
Host review scores over time.
This allows Airbnb to maximize bookings for all available
dates. The lesson here is to monitor the widest possible purview of variables
when considering pricing and to take special consideration of events occurring
in destinations.
Amazon has also built heavily on its data advantage, making
it a leader in dynamic pricing in the retail industry. Amazon has access not
only to one of the world’s largest online marketplaces but also an entire
ecosystem of sellers who it can monitor to find bestselling products and
pricing information.
This allows it to find key products that bring people to its
site and price them in a manner that brings in a sale but also reinforces the
customers view of Amazon as the best value marketplace. Meanwhile it looks for
price inelastic goods and maintains margins on these to make up for low margins
or even losses on other products.
Amazon does this through regular pricing adjustments that
sometimes are made on an hourly basis depending on demand.
It was also one of the first to move into the realm of
personalized offers. The user is confronted with suggestions related to what
they have purchased and what they are currently looking at. These suggestions
are dynamically put together based on various factors such as past purchases
the user has made, as well purchases that others have made with a similar
interest profile.
The core lesson here is to think about how pricing can
impact long-term loyalty and price aggressively to draw in first-time
customers.
Although more segmented pricing has potential rewards, it
also does not come without risks. Tinder, the popular social match-maker and a
fast-growing player in the platform economy has applied a pricing practice that
may have been correct from a data perspective but came unstuck against
legislation and consumer rights.
As with all pricing, it is a case of supply and demand, with
older consumers more willing to pay for the service and were thus being charged
more for their Tinder Plus and Tinder Gold services. Older consumers are operating
from a smaller pool of potential partners, frequently have higher earnings or
wealth and are less common on the Tinder app, making finding a partner harder,
thus meaning it makes more sense from a user perspective to pay to level the
playing field and improve their probability of generating successful matches.
However, Tinder ran afoul of ethics and the law with their
strategy, settling a class action lawsuit for USD17.3 million in January 2019
through the California lawcourts.
It will be
paramount for travel companies to ensure that their pricing practices are based
on segmentation using context and behavior, and on supply and demand, as
opposed to factors which can be legally challenging due to being discriminatory.
- Detailed analysis from a report written by
a pricing expert and consultant.
- A breakdown of modern pricing practice in
travel to help you get to grips with the current environment and how it is
changing.
- Key rules to create your own advanced
pricing regime.
- Real-world examples of advanced pricing
practices from Airbnb, Amazon and more.
- How to integrate dynamic pricing into
increasingly complex distribution networks.
