Introduction to Dynamic Pricing
Dynamic pricing is the modern approach to pricing and pricing strategies that deals with determining the optimal selling price of product or service – in reference to the actual value of the product in that specific moment, in a setting where prices can extremely easily and frequently be adjusted.
Dynamic pricing techniques are nowadays widely used in various businesses, contributing to their pricing strategies as well as effective inventory utilisation. Technological sales environments provide firms with an abundance of sales data. This data contains important insights on consumer behavior, especially how consumers respond to different prices. Exploiting the knowledge contained in the data and applying this to dynamic pricing strategies provides key competitive advantages, and knowledge of how this should be done is of utmost practical relevance.
Contrary to common belief, dynamic pricing isn’t just about hiking prices when demand soars; it’s about carefully fine-tuning the cost of a product or service to match its true value at any given moment.
Let’s use an example to understand the basic behaviours of consumers and their perceived values:
On a hot summer afternoon, an ice cream truck comes to a park. Families and kids gather because they crave something cold to eat. The ice cream seller charges a marked-up price, and the customers are happy to pay for their ice creams because even with the slightly higher price, customers find a value in the product and are willing to pay for it.
Later, in the evening, when the sun goes down and it’s not so hot anymore, the same ice cream truck goes to a busy downtown area. Because it’s not so hot, people are not as interested in ice cream, because the perceived value of the same ice cream has decreased due to shifts in time & other external factors. So, the seller decides to make the ice cream cheaper to entice his target customers. Now, the customers view the ice cream’s deal to be a very good one and it encourages them to pay less for the same product that was charged higher for in the noon, so people buy it.
Matching Supply with Demand
Dynamic pricing balances supply and demand, especially when resources are limited. It aims to meet customer needs efficiently, managing supply and adjusting prices in response to changes in demand. This strategy prevents overbooking, encourages off-peak consumption, and fosters competition to benefit both businesses and customers.
Application of AI in Dynamic Pricing
Artificial Intelligence (AI) and Deep Learning are the cherry on top, for both businesses and customers. Through AI businesses can harness the power of data analysis and predictive insights. These technologies process extensive data sets, including historical sales figures, market trends, and customer preferences – making sure that the prices do not go unnecessarily high, and stay in tune with the market and the customer’s willingness and expectations. When rightly used, the AI-powered Dynamic Pricing algorithms make even the most expensive products or services – affordable for the end consumers while also benefitting the businesses. Deep Learning algorithms uncover hidden patterns, allowing businesses to make highly accurate predictions about future demand as well as pricing trends.
Viaje.AI making luxury affordable
Viaje.AI is at the forefront of this. With Viaje.AI, the ai powered dynamic pricing software – star product of Sciative, a well-known STU saw a remarkable growth of 62% in its revenues.
In the fiercely competitive and operationally expensive landscape of the intercity bus market in India, the STU which was a highly reputed authority in the transport sector, embarked on a transformative journey to address their pricing decisions and challenges related to the same.
One of the immediate and notable impacts of implementing Viaje.ai was a substantial increase in average occupancies. Occupancies surged by a compelling 16%, all the while decreasing their Average Seat Prices (ASPs). The decrease in the ASPs rightly attracted the customers who were able to afford luxurious and safe travel at bearable prices. This uplift in occupancy rates directly contributed to higher revenues and operational efficiency.
The dynamic pricing system offered a healthy mix of prices on different seats, catering to various customer segments with diverse pricing preferences. This tailored approach attracted a wider customer base, further boosting revenues.
By dynamically adjusting prices, the concerning STU was able to make their online bookings more competitively priced. This strategic move led to a significant increase in online bookings, as travelers found it more cost-effective to reserve their seats through digital channels.
You see, the end goal of dynamic pricing is to make the customers and sellers, both, meet their requirements. It is a highly complex process, that is there for the good of both the parties. It is an art, it is a science. It’s about fairness.