DYNAMIC PRICING

Pricing has been a hotly pursued topic for marketing, as every percent increase in price without a corresponding demand decrease means an increase in profits. However, over the past decade, we have seen a new, dynamic pricing equilibrium favoring customers and fueled by third- party pricing search tools. For example, in the travel industry, travel sites such as Bing, Travelocity, or Priceline offer customers the ability to search across an entire market and find deals. Wherever the product is perishable-theater tickets or airline seats, for example—the new marketplace lets buyers find deals for items that need to move off the inventory or else will remain unsold.

Let me take the example of Bing and discuss their ability to monitor travel pricing, and advise customers regarding timing for ticket purchase. They purchased a company called Farecast in order to include a fare history analysis as part of their travel website. For travel between two cities, Bing provides useful information on price fluctuations in the past, and based on this historical data, it predicts whether a consumer should buy a ticket now or later. I ran the advice for a trip from Los Angeles to Denver for the first week of November and received the advice to wait, as well as a prediction that the price would further drop by $50. Airline pricing data is both dynamic as well as public. Competitors and buyers can collect, organize, and analyze this data for their price optimization.

EBay and other auction marketplaces have brought buyers and sellers together where price is determined through a bidding process. This creates an interesting dynamic in that suppliers are using sophisticated price optimization models to determine price based on supply and demand, and consumers are using third parties to find the best deals. Prices change often, with constant fine-tuning based on supply and demand. These models are also bringing a new set of retailers who provide a layer of customer interface between the customer and the supplier. The retailer and the supplier now share responsibility for the customer experience, and they each have a direct impact on the resulting customer experience as felt at the end by the customer. For instance, after years of dealing with my favorite rental car company and receiving excellent differentiated service, I used a retailer and ended up purchasing a package that included travel, hotel, and car rental, only to find that the premium customer policy for car rental cancellation no longer applied to this bundled package.

 
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