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Dynamic pricing


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Cheil Turkey looks at various examples of dynamic pricing and explores its evolution into sympathetic pricing as a tactic brands use to develop a competitive edge and provide better value for their customers.

Published in: Marketing
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Dynamic pricing

  1. 1. © 2015 Cheil Turkey Dynamic  Pricing   August  2015  
  2. 2. © 2015 Cheil Turkey   WHAT  IS     DYNAMIC  PRICING?    
  3. 3. © 2015 Cheil Turkey Some  Keywords   Dynamic  Pricing   Sympathe8c  Pricing   Price  Elas8city   Personal  pricing   Real-­‐8me  pricing   Flexible  pricing    
  4. 4.       Dynamic  pricing  is  a  pricing  strategy  in  which  businesses  set  flexible  prices  for  products  or   services  based  on  current  market  demands.  Businesses  are  able  to  change  prices  based   on  algorithms  that  take  into  account  compeDtor  pricing,  supply  and  demand,     and  other  external  factors  in  the  market.       * © 2015 Cheil Turkey
  5. 5. © 2015 Cheil Turkey Dynamic  pricing  is  a  common  pracDce  in   several  industries  such  as  hospitality,   travel,  entertainment,  and  retail.  Each   industry  takes  a  slightly  different  approach   to  repricing  based  on  its  needs  and  the   demand  for  the  product.     *
  6. 6. Airlines  are  the  most  familiar  users  of  dynamic  pricing.  But  the   whole  concept  of  raising  prices  when  demand  grows  is  taking  root  in   other  sectors  too:  car  rental  companies,  hotels,  uDliDes,  online   retailers  –  and  now  theatres.       Many  theaters  discount  Dckets  for  performances  that  aren‘t  selling   well,  adjusDng  prices  to  meet  demand  (or,  in  this  case,  a  lack   thereof).  That‘s  dynamic  pricing  too.     * © 2015 Cheil Turkey
  7. 7. © 2015 Cheil Turkey   TYPES  OF   DYNAMIC  PRICING:    
  8. 8. © 2015 Cheil Turkey Hospitality*       Hotels  and  other  players  in  the  hospitality  industry   use  dynamic  pricing  to  adjust  the  cost  of  rooms  and   packages  based  on  the  supply  and  demand  needs  at   a  parDcular  moment.  The  goal  of  dynamic  pricing  in   this  industry  is  to  find  the  highest  price  that   consumers  are  willing  to  pay.  Another  name  for   dynamic  pricing  in  the  industry  is  demand  pricing.     *
  9. 9. © 2015 Cheil Turkey Travel*     Airlines  change  prices  oUen  depending  on  the  day   of  the  week,  Dme  of  day,  and  number  of  days   before  the  flight.  For  airlines,  dynamic  pricing   factors  in  different  components  such  as:  how   many  seats  a  flight  has,  departure  Dme,  and   average  cancellaDons  on  similar  flights.   *
  10. 10. © 2015 Cheil Turkey Entertainment*   Sports  DckeDng  is  a  segment  of  the  entertainment   industry  that  uses  real-­‐Dme  pricing  to  boost   revenue.  Dynamic  pricing  is  parDcularly  important  in   baseball  because  MLB  teams  play  around  twice  as   many  games  as  some  other  sports  and  in  much   larger  venues.     Sports  that  are  outdoors  have  to  factor  weather  into   pricing  strategy,  in  addiDon  to  date  of  the  game,   date  of  purchase,  and  opponent.  Tickets  for  a  game   during  inclement  weather  will  sell  beYer  at  a  lower   price;  conversely,  when  a  team  is  on  a  winning   streak,  fans  will  be  willing  to  pay  more.     *
  11. 11. © 2015 Cheil Turkey Entertainment*                     For  example,  the  St.  Louis  Cardinals  set  their  Dcket  price  algorithms  based  on  factors  like  team   performance,  pitching  match  ups,  weather,  and  Dcket  demand.  In  their  2012  season,  Dckets  were  priced   for  $10  or  less  for  three-­‐quarters  of  games  played  at  the  team's  home  stadium.   *
  12. 12. © 2015 Cheil Turkey Retail*   Retailers,  and  online  retailers  in  parDcular,  adjust  the  price  of  their  products  according  to  compeDtors,   Dme,  traffic,  conversion  rates,  and  sales  goals.  The  aim  of  dynamic  pricing  is  to  increase  revenue  and  profit.   *
  13. 13. © 2015 Cheil Turkey Dynamic  Pricing  at  Amazon  Marketplace*                   The  Amazon  marketplace  is  very  crowded  with  sellers.  There,  dynamic  pricing  means  retailers  can  change   the  price  of  products  immediately,  intensifying  compeDDon.   *
  14. 14. © 2015 Cheil Turkey Pricing  Based  on  CompeDtors*     Businesses  that  want  to  price  compeDDvely  will   monitor  their  compeDtors’  prices  and  adjust   accordingly.  Amazon  is  a  market  leader  in  retail  that   reprices  oUen,  which  encourages  other  retailers  to   alter  their  prices  to  stay  compeDDve.  CompeDtor-­‐ based  dynamic  pricing  can  increase  sales,  especially   if  they  take  advantage  when  other  retailers  run  out   of  stock.   *
  15. 15. © 2015 Cheil Turkey Time-­‐based  Pricing*   Many  industries  change  prices  depending  on   the  Dme  of  day,  especially  online  retailers,  whose   customers  usually  shop  the  most  in  during  weekly   office  hours  between  9AM-­‐5PM.  Raising  prices   during  the  morning  and  aUernoon  and  lowering   prices  during  the  evening  is  a  common  pracDce   with  dynamic  pricing.     TransportaDon  is  another  area  where  prices  vary   based  on  the  Dme  of  day.  The  San  Francisco  Bay   Bridge  charges  a  higher  toll  during  rush  hour  and   on  the  weekend,  when  drivers  are  more  likely  to   be  travelling.     *
  16. 16. © 2015 Cheil Turkey   SIMILAR  APPROACH:     SYMPATHETIC  PRICING  
  17. 17. © 2015 Cheil Turkey     SympatheDc  Pricing  is,  “flexible  and  imaginaDve   discounts  that  help  ease  lifestyle  pain  points,  lend  a   helping  hand  in  difficult  Dmes,  or  support  a  shared   value.”  It  means  offering  your  customers  discounts   based  on  shared  moments  or  values—think  of  your   local  coffee  shop’s  early  bird  special  for  those  of  us   unlucky  enough  to  be  out  and  in  need  of  a  beverage   between  5-­‐6am.  Or  remember  McDonalds  sharing   water  and  food  with  rescue  workers  aUer  the   September  11th  aYack.             * A  new  trend  resona8ng  with  consumers  is  SympatheDc  Pricing.*    
  18. 18. © 2015 Cheil Turkey   SympatheDc  Pricing  focuses  on  the  needs  and/or   values  of  the  person  paying,  rather  than  the  innate   social  or  environmental  aYributes  of  what  is  being   sold.*         *
  19. 19. © 2015 Cheil Turkey When  it  comes  to  being  a  truly  human  brand,   brands  are  constantly  reassuring  consumers  that   they  care.  Care,  that  is,  about  everyday  lifestyle   challenges  that  individual  consumers  face,  as  well  as   the  big  problems  we  all  share  –  sustainability,  social   responsibility    and  more.*     Vicki  Loomes,  senior  trend  analyst  at,  says  such  pricing  strategies   allow  brands  to  show  their  human  side.  “They  are   saying,  we  care  and  understand  your  problem,  and   this  is  us  punng  our  money  where  our  mouth  is,”   she  says.     *
  20. 20. © 2015 Cheil Turkey Discounts  that  offer  a  helping  hand  at  difficult  8mes  will  always  be  welcomed;*     In  April  2014,  online  plaporm  Pressfolios  announced  it  would  make  its  porpolio  service  free  to   journalists  affected  by  staff  redundancies  at  one  of  New  Jersey's  biggest  newspapers.  Discounts   that  highlight  shared  values  and  beliefs  and  tap  into  a  specific  group  of  consumers  are  more   effecDve  and  emoDve  than  a  bland,  all-­‐encompassing  CSR  campaign.               *WARC Trendwatch: Sympathetic pricing
  21. 21. © 2015 Cheil Turkey                     In  March  2014,  Dutch  airline  Corendon  offered  a  50%  discount  on  flights  to  Russia  for  passengers   travelling  to  the  Winter  Olympics  to  demonstrate  for  gay  rights.     *WARC Trendwatch: Sympathetic pricing
  22. 22. © 2015 Cheil Turkey                     In  March  2014,  Panasonic  announced  it  would  pay  workers  in  China  more  to  compensate  for   high  polluDon  levels.  Truly  forward-­‐thinking  brands  have  sympathy  for  everyone.           *WARC Trendwatch: Sympathetic pricing
  23. 23. © 2015 Cheil Turkey   LET’S  LOOK  AT  THE     EXAMPLES...  
  24. 24. © 2015 Cheil Turkey Best  Buy*   Best  Buy  is  one  of  the  companies  that  has  engaged  in  dynamic  pricing.  Amitabh  Biswal,  the  manager  of   merchandising  opera8ons  at  Best  Buy  Canada,  said  his  company  was  at  first  just  reac8ng  to  customers'   tendency  to  comparison  shop  for  electronics.       * "It  has  become  very  easy  for  a  customer  to  research  prices.  At  Best  Buy  Canada,  we  have  implemented  capability  that   blends  in  compe==ve  prices.  In  the  past  year,  we  have  increased  our  online  assortment  by  about  20,000  products  in   Canada.  Many  of  them  are  not  carried  in  our  stores.  If  a  customer  is  able  to  get  a  price  online,  they  should  be  able  to  get   it  in  the  store  as  well.  So  we're  able  to  respond  and  react  to  compe==ve  [compe==on]  more  quickly."  
  25. 25. © 2015 Cheil Turkey McDonald’s*   When  the  temperature  at  the  Damrak  in  Amsterdam  hit  a  record  of  38.6  degrees  Celsius  (101.48  F,)  a  panel   opened  automa8cally  to  offer  out  100  McFlurry  cups  to  passing  pedestrians.     They  then  had  to  pop  into  the  nearby  McDonald's  restaurant  to  collect  their  free  ice  cream.     *
  26. 26. © 2015 Cheil Turkey Emart*                               * To  boost  sales  at  lunch8me  Emart  introduced  “The  Sunny  Sale”  which  involved  a  three-­‐dimensional  QR  code   that  was  placed  across  the  city  and  could  only  be  scanned  during  the  hours  of  12  and  1  each  day,  due  to  the   sunlight  cas8ng  a  shadow  to  complete  the  QR  code.  Anybody  who  did  scan  the  code  was  given  a  special   discount  code  with  25%  off  that  could  be  redeemed  in  store  or  through  their  mobile  e  commerce  site.    
  27. 27. © 2015 Cheil Turkey BGH*   The  Argen8nian  air-­‐condi8oner  manufacturer  offers  price  reduc8ons  during  summer  heat  waves.  But  while   consumers  will  welcome  being  cooler,  the  energy  costs  of  doing  so  will  leave  the  climate  warmer.   *
  28. 28. © 2015 Cheil Turkey BGH*   *
  29. 29. © 2015 Cheil Turkey Puma*   To  showcase  their  super  fast  running  shoes,  Puma  in  Mexico  encouraged  customers  to  shop  as  quickly  as   possible  by  incen8vising  speedy  shoppers  with  a  discount  in  a  campaign  named  “The  World’s  Fastest   Purchase”.   *
  30. 30. © 2015 Cheil Turkey Noosa  InternaDonal  Resort*   In  March  2013,  the  Noosa  Interna8onal   Resort  on  Australia’s  Sunshine  Coast   offered  guests  a  20%  discount  on  hotel   accommoda8on  if  local  rainfall  registered   more  than  5  mm  during  their  stay.   *
  31. 31. © 2015 Cheil Turkey Uber*   * Uber  offered  travellers  in  London  and   Boston  discounts  when  they  were  hit  by   public  transport  disrup8on.  
  32. 32. © 2015 Cheil Turkey PruHealth*   UK  medical  insurance  company  PruHealth  gives   discounts  to  its  exercise-­‐taking  customers.  The   more  exercise  they  do,  the  lower  their   premiums.    As  a  result,  the  insurer’s  customers   are  fifer  and  the  insurer’s  payout  rates  are   smaller.     PruHealth  also  rewards  customers  with   discounts  for  adop8ng  healthy  habits  –  for   example  a  customer  can  save  75%  on  a   weekend  visit  to  a  health  spa.   *
  33. 33. © 2015 Cheil Turkey La  PeDte  Syrah*   A  cafe    in  Nice  on  the  Côte  d'Azur  has  gained   interna8onal  notoriety  aker  reminding   customers  to  mind  their  manners.  It  drops  the   price  of  a  coffee  when  customers  say  “please.”     Sign  outside  Côte  d'Azur  establishment  lists   price  of  coffee  as  €7  but  'Bonjour,  un  café,  s'il   vous  plaît'  costs  only  €1.40.   *
  34. 34. © 2015 Cheil Turkey 1)  To  boost  sales  à  For  brands  to  involve  in  promo8onal  /seasonal   ac8vi8es  without  devaluing  the  brand  through  ‘offers’/‘discounts’     2)  To  be  close  to  consumers  à  For  brands  to  respond  to  customers’   needs  in  real  8me,  thus  genera8ng  unique  value  percep8on  that  builds   loyalty.     3)  To  create  buzz  à  For  brands  to  earn  reputa8on  of  an  innova8ve   and  consumer-­‐centric  market  player    3  MAIN  REASONS  FOR  BRANDS  TO  USE  DYNAMIC  PRICING  
  35. 35. © 2015 Cheil Turkey THANK  YOU.