If the retailer sets the optimal price at the outset then the need for dynamic pricing diminishes. The report also highlights another challenge. But in a large number of situations price is not the only or key decision criteria and retailers need to understand the price elasticity before making any decisions. In some instances this can be understandable, especially if the only point of differentiation is price point. One example comes from consumer electronics with Best Buy and Amazon matching each other as one or the other moves their pricing around during the holiday season. The competitive situation can also drive retailers to consider employing dynamic pricing. Grocery retailing however does not typically have the same characteristics as a show on Broadway so dynamic pricing is a harder concept for consumers to accept but in other areas of retail consumers have become accustomed to it. What all of these “products” have in common is limited inventory and high consumption – consumers understand that if they want to guarantee a seat then buying early is advantageous whereas leaving it to the last minute has some risk. Consumers have also become accustomed to paying different prices for plane tickets and hotel rooms and, as the study notes, tickets to sporting events. Look at the theatre landscape - you don’t have to look far to find the half-price ticket booths in New York’s Times Square or London’s Leicester Square. Is Dynamic Pricing a Hit? – pricing can be more or less accepted by consumers depending on a few key factors: the product that is being priced, the price determination process, the competitive situation and the communication surrounding the dynamic price.ĭynamic pricing has been part of our culture for years.As long as companies are doing it in a smart way and as long as they have the long run in mind and they’re not trying to squeeze as many dollars as they can right now, it really can be in everybody’s best interest.” “We’re understanding that whether it’s with airplanes, professional sports, ride-sharing services, dynamic pricing is here to stay. “From the fan side, we’re getting used to it,” said Prof. Fader noted that despite the fears, MLB clubs haven’t “overreached” and no major backlashes erupted. You can implement the same solution and do it poorly because of how you use information.”Ī primary finding, however, was that more flexible pricing holds benefits for both buyers and sellers. “People think of dynamic pricing as an evil or a panacea,” noted Senthil Veeraraghavan, a Wharton professor of operations, information and decisions. One surprise finding in the study is that a “well-chosen” static price can work better than variable pricing, although it’s a challenge to come up with the optimal price amid constantly changing factors affecting supply and demand. “ are finally getting smart and saying, ‘We want to take control of this. “Part of that means adjusting the prices over time, some charging different prices to different people, depending on the nature of the game and so on,” said Peter Fader, marketing professor at Wharton. The arrival of sophisticated secondary markets like Stubhub caused some consternation, but now clubs are exploring dynamic pricing advantages. The paper notes that for years, professional sports organizations used arbitrary prices and relied on secondary markets to reach the right equilibrium. The study, “The Revenue Impact of Dynamic Pricing Policies in Major League Baseball Ticket Sales,” explored the impact of dynamic pricing with one MLB club. Presented here for discussion is a summary of a current article published with permission from the online research and business analysis journal of the Wharton School of the University of Pennsylvania.Īlthough dynamic pricing got negative press when ride-sharing platform Uber used it to dramatically increase prices during surge times, consumers are becoming accustomed to the practice, according to a study from Wharton professors.
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