Download - Dynamic Pricing
Presented by-Shama ParveenMeenu GuptaNishtha ZutshiKanika Agarwal
Traditional pricing
Traditional pricing is also known as
Conventional or Cost Based Pricing .
It is known as cost based pricing because it
is calculated as:
Cost + Fixed Profit Percentage = Selling
Price
Dynamic pricing
•A flexible pricing mechanism made possible by advances in
information technology, and employed mostly by Internet based
companies
•By responding to market fluctuations or large amounts of data
gathered from customers
•Allows online companies to adjust the prices
of identical goods to correspond to a
customer’s willingness to pay
MERITS OF DYNAMIC PRICING OVER TRADITIONAL PRICING
Reaching new customers who are price
sensitive
Helping dealers move used and refurbished
products
Providing your best customers with a private
market for your products
Tapping into a customer base looking for
low prices over non-price features
Targeting unsuccessful bidders as new sales leads
demerits
Diminishing the image of high-price/high-quality brands
Reducing margins on products sold via auctions
TYPES OF DYNAMIC PRICING
Yield based pricing Activity based pricing Auction based pricing
YIELD MANAGEMENT
A yield management (also known as Revenue Management) based pricing strategy
uses historic data and mathematical models
to predict demand at future points in time
It then sets different prices at these different time points according to the predicted demand as well as varying prices according to the actual demand
8
YIELD MANAGEMENT: MAXIMIZING REVENUE FROM AVAILABLE CAPACITY AT A GIVEN TIME
Based on price customization--charging different customers (value segments) different prices for same product
Useful in dynamic market where demand can be divided into different price buckets according to price sensitivity
9
Yield Management: Maximizing Revenue from Available Capacity at a Given Time
Requires rate fences to prevent customers in one value segment from purchasing more cheaply than willing to pay
YM uses mathematical models to examine historical data and real time information to determine• what prices to charge within each price bucket• how many seats (or other service units) to allocate
to each bucket
SEVEN STEPS TOWARDSYIELD MANAGEMENT
Identify unused capacity and reasons for underutilization Identify and derive use cases for unused capacity Calculate the impact on profitability and cost of
ownership Perform value-creation analyses for different stakeholders Base solutions on innovative services explicitly designed to use only spare capacity Get ideas from other industries for a framework that will
simplify decision modeling Articulate several innovative cases to test both the strength of arguments and the decision framework
AIRLINES INDUSTRIES
Price discrimination strategy -Business class Reserve full seat Limit the number of discount seat -Leisure travelers Price more flexible Advance booking Non refundability
12
First Class
Full Fare Economy (No Restrictions)
One-Week Advance Purchase
One-Week Advance Purchase, Saturday Night Stayover
3-Week Advance Purchase, Saturday Night Stayover
3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds
3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes
Late Sales through Consolidators/ Internet, no refunds
Capacity
of AircraftNo. of Seats Demanded
Capacity
of 1st-classCabin
Price perSeat
ACTIVITY BASED PRICING
ABC based pricing recognize that all activity taking place within the firm directly or indirectly supports the production, marketing and delivery of goods and services
14
ACTIVITY-BASED COSTING(ABC)
Managers need to see costs as integral part of firm’s effort to create value for customers
When looking at prices, customers care about value to them, not what production cost the firm
15
ACTIVITY-BASED COSTING:
Traditional cost accounting emphasizes expense categories, with arbitrary allocation of overheads
ABC management systems examine activities needed to create and deliver service (do they add value?)
16
ACTIVITY-BASED COSTING:
Must link resource expenses to:• variety of products produced• complexity of products• demands made by individual
customers
STEPS OF ABC Identify and define activities and
activity pools
Directly trace costs to activities (to the extent feasible)
Assign costs to activity cost pools Calculate activity rates
Assign costs to cost objects using the activity rates and activity measures previously determined
Prepare and distribute management reports
EXAMPLE: HOSPITALS
The cost of an episode of care Accurate allocation of administrative costs to products A comparison of costs and their causes over time Information regarding the cost of various activities
AUCTION BASED PRICING
Common name for several types of sales where the price is neither set nor arrived at by negotiation, but is discovered through the process of competitive and open bidding
An auction is complete when a bid is accepted by the seller or the buyer
Internet auctions are an important aspect of electronic commerce
TYPES OF AUCTION
(1) Forward auction in which several buyers bid for one seller's good(s) and
(2) Reverse auction in which several sellers bid for one buyer's order
EXAMPLE: E-AUCTION
Auction Pricing Strategy of Ebay
The ‘Few Dollars More’ Strategy
The ‘One Dollar Less’ Strategy
The ‘Free Shipping’ Strategy
The ‘Go for It’ Strategy
UNINOR-CREATED DYNAMISM IN TELECOM
Badalta 24*7 discount plan
Ranges from 5% to as much as 60%
Acc. To the place of calling
Time of calling
HOW IT WORKS
visible at all times on the screens of handsets that display cell broadcast
depend on network traffic and customers location at that time
all their communication conveys dynamism