Many small businesses struggle with pricing, wondering what the market is willing to pay, should they offer discounts, what is the impact to the brand, how will they cover costs, etc. New technology is helping retailers use dynamic pricing to answer some of these questions. Hotels and airlines are already using this technology to anticipate demand and fill seats and rooms more efficiently. Consultants, for example, are charging for results by the hour rather than by the project. Uber, a Silicon Valley firm, uses a mobile app that connects people who need transportation with a small army of black cars. Uber charges more when demand is high and the supply of cars is low. Uber’s prices are controlled by an algorithm. However, this change in price has caused some customers to become irate with the unexpected fare increase.
There are many companies that sell re-pricing software. For example, FeedVisor uses algorithms to decide the best price within a firm’s parameters and at what price competitors are selling. Restaurants are also using innovative pricing strategies. Several years ago, Groupon acquired Savored, a restaurant reservation engine. Savored helps restaurants offer customers a percentage off an entire meal in return for dining at a specified time. Restaurants are using Savored to increase traffic during off-peak hours, often increasing sales by 50 to 70%.
Real estate agents are also using new pricing strategies. For example, a firm in Atlanta charges an upfront listing fee of $500 and one-third to 1 percent when a house sells. The agency has more than 800 active listings and has had more than 1,400 sales in the past 12 months. The agents offer limited services including listing the house on Zillow and Trulia, supplying sellers with a 60 point, do-it-yourself marketing guide, rents lockboxes for $100, and charges $94 to have the home professionally photographed. The pricing model doesn’t suit everyone, but experienced sellers are responding favorably.
1. What is variable pricing?
2. How are retailers utilizing this pricing tool?
Sources: Donna Fennjan, New York Times, January 22, 2014; Ingram Publishing