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Dynamic Pricing: Past, Present, and Future


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These slides use concepts from my (Jeff Funk) course entitled analyzing hi-tech opportunities to show how the cost and performance of gas sensors are improving rapidly, making many new applications possible.

Published in: Business
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Dynamic Pricing: Past, Present, and Future

  2. 2. CONTENTS  What is Dynamic Pricing?  Static vs Dynamic Pricing  Evolution Over the Past  Current Drivers and Trends  Future Trends  Future Applications & Opportunities  Conclusion
  3. 3. WHAT IS DYNAMIC PRICING ? • ‘Dynamic pricing’ is a flexible pricing strategy where the businesses set flexible prices for products or services based on algorithms that take into account several factors such as : 1. Competitor Pricing 2. Time-based Pricing 3. Supply and Demand 4. Customer Profile 5. External factors in the market
  5. 5. EVOLUTION OVER THE PAST • Pioneered by the American Airlines in the 80’s in the form of revenue management. • Pricing was majorly done only based on supply and demand. MORE DYNAMIC AND MULTIPLE-STRATEGISED NOW • TIME-BASED PRICING • PENETRATION PRICING • PEAK PRICING • SEGMENTED PRICING
  6. 6. EXAMPLES OF CURRENT USERS IN MARKET : HIGHLIGHTS Examples of notable retailers using Dynamic Pricing and what they accomplished with it : A Top 10 US Retailer $44 billion in sales in 2013 27% sales increase Prices change every 10 min Repriced 25% of products daily for the holidays in 2012 17% sales increase in eCommerce sales 50,000 price changes monthly Online sales grew 30% in 2013 Wal-Mart’s growth topped Amazon’s eCommerce makes up 13% of total sales Online sales grew 25% in 2013 and 20% in 2014
  7. 7. BIG DATA IN DYNAMIC PRICING With the advent of big data and big data analytics, business rules for price adjustments can be made more granular.
  8. 8.  BETTER DATA ANALYTICS SOLUTIONS • Through the support of IT and database management, vast amounts of rich sales and transactional data is available. • With the advent and development of several DATA MINING AND ANALYSIS ALGORITHMS for pricing, this data is used to produce actionable insights and for predictive intelligence. • Firms rely majorly on analytics for the development of dynamic pricing solutions. CURRENT TRENDS & DRIVERS
  9. 9. • Relevant, cleaned and structured data along with the aid of fast and reliable technology does the magic. • By collecting and analyzing data, it can correlate huge quantities of information about everything from product availability to competitor prices on specific products to information about local economic conditions in order to set prices.  BETTER DATA ANALYTICS SOLUTIONS CURRENT TRENDS & DRIVERS
  10. 10.  BETTER DATA ANALYTICS SOLUTIONS For example , some common data analysis techniques used for ‘Dynamic Pricing’ are : CURRENT TRENDS & DRIVERS DEMAND FORECASTING • Using big-data exploration, a TIME-SERIES FORECASTING technique is used to predict the price/demand elasticity of customers. CLUSTER ANALYSIS FOR CUSTOMER SEGMENTATION : • Big-data used to perform CLUSTER ANALYSIS to group customers into segments and price dynamically based on different customer purchasing activities , demographic characteristics, etc.
  11. 11.  BETTER DATA ANALYTICS SOLUTIONS Some examples of adept current day pricing tools and softwares based on big-data analysis and business intelligence developed by top-notch organizations are given below. CURRENT TRENDS & DRIVERS
  12. 12.  INTERNET ACESSIBILITY & COST 1. Increased Internet Usage 2. Faster Speed 3. Cheaper Access 4. More Customer Profiles 5. Low Barriers To Enter The E-commerce World CURRENT TRENDS & DRIVERS
  13. 13. 1. MORE USERS • More People book their tours Online, and its over half of orders, superior the traditional order. • In the past, people buy tickets from agents or from airline directly, fixed prices were convenient and easy for management. But now, airline companies can using dynamic pricing to gain more profit.
  14. 14. 2. FASTER SPEED • With faster Internet speed, the companies can adjust their prices faster. More adjustments will find more suitable potential customers, and can gain more revenue. • Amazon, one of the largest retailers that uses dynamic pricing, adopt a faster price adjustment from days to every 10 minutes on average, which leads to a 27.2% increase in sales from 2012 to 2013.
  15. 15. 3. CHEAPER ACCESS • Though Internet is a convenient way to adopt dynamic pricing, but the fee for Internet is a big consideration in the past ($1200/Mbps), which was even more than some small retailers’ revenue, so few retailers thought about it in the past. • But now, the Internet price is ‘1/1000 th ’of the price in 1998. Internet fee is no longer a main consideration for the retailers. More than 29% of retailers are willing to adopt dynamic pricing in one year.
  16. 16. • With the widely-used shopping through Internet, the customers’ profile data is easier to acquire (when register for a new shopping website or airline booking websites). • In the past, asking for personal data was intrusion, but now customers profile data, shopping history and other personal data is very easy to get through Internet website databases. 4. MORE CUSTOMERS PROFILE
  17. 17. • In the past, the dynamic pricing just changed the prices according to the supply and demand data. • But now, with more customers profile, it can also change its strategy and modify the prices from person to person, and maximally find the potential buyers. 4. MORE CUSTOMERS PROFILE
  18. 18. • Travel websites often offer more expensive trips to the Apple computer users, compared to the Windows users. • B&Q has used a new dynamic pricing system that changes the price of products depending on a customer’s profile. • Loyal customers will be rewarded with discounts and special offers whilst less-frequent customers will be offered a different price. 4. MORE CUSTOMERS PROFILE
  19. 19. 5. LOW BARRIERS TO ENTER THE E-COMMERCE WORLD • Ease of access and entry into the e-commerce world has become very advantageous to small players and new retailers. • It is no longer special and a clash of few selected giant retailers online. • Such a COMPLICATED and SATURATED marketplace requires competitive dynamic pricing.
  20. 20.  Impacts of smart phones on dynamic pricing 1. Mobile Networks 2. Real-time Physical Location 3. Networking Information CURRENT TRENDS & DRIVERS
  21. 21. Popularity of Smartphone • More people prefer online shopping through their smart phones. In the past, people can only compare prices online by sitting in front of a computer, now they can grasp the lowest cost anytime anywhere with a smart phone. • The development of ICs reduced smart phone costs, thereby promoted the popularity of smart phones.
  22. 22. Mobile Networks • With the development of wireless technology, people enjoy superfast online access. They can scan QR code when they are in physical stores and immediately compare the price. They can also track the dynamic pricing during time pockets to buy at best moment. • 58% of smartphone owners use their phones to compare prices while in-store
  23. 23. • For companies, with customers’ permission they can acquire customers’ profile data like the phone type and physical location while they scan codes, then analyze the data to adjust price to cater potential customers • Statistics result shows $5 price difference on a $50 product tips the scales in online shopping’s favor
  24. 24. • Besides, every seconds people check price using smart phone, which gives company loads of real-time data to adjust price based on fast market response like page views and turnover • In the past, the intensive market response only happens when people have leisure time with computers at hand
  25. 25. Real-time Physical location • Smartphone achieved display of personal physical location in real-time, which creates new business model like Uber • Uber’s wild success is its data(customers’ and drivers’ real-time locations) and algorithmically (dynamic pricing) build a platform to match supply and demand for cars
  26. 26. • In new year’s eve or after a big activity when there are relatively more riders than rides, Uber employs a “surge pricing” to encourage more drivers to go online. • The surge pricing works by allocating a higher hourly income to driver partners in order to convince them to work where and when demand is high. It also allocated rides to riders who value them most
  27. 27. • Comparison is the last New Year's Eve in New York Uber had a transient failure on dynamic pricing system. Results showed the ride a success rate fell to only 25% and the waiting time is much longer than previous sample • In the absence of surge pricing, the demand is unusually high but driver partners don’t want to work because the income is not attractive An Example of Uber Without Surge
  28. 28. • Real-time physical location can also help for building new parking management and profit model ,which increase revenues and parking efficiency. • New variable pricing scheme varies prices over the course of the day and different quarter, based on demand data(the number of drivers want to park nearby). Drivers can check the neighboring vacancy spots and corresponding price on smartphone to make a affordability-distance balanced choice
  29. 29. Networking information • Dynamic pricing in a smartphone world is greatly influenced by market demands driven by networking power. It makes dynamic pricing information propagate faster and receive faster market responses • Many price comparison APP have networking functions now. Customers can post local price as reference and share comparison result on social media websites. Friends can follow networking channels and make shopping decision by seeing others’ review
  30. 30. • Companies can keep an eye on the competition’s prices from price comparison APP and networking popularity. They can promote customer demands using the power of social networking and timely adjust price in response to customer feedback
  31. 31. Dynamic Pricing Future Trends 1. Individualized Dynamic Pricing strategies with Smartphone Data 2. Price Display by Smartphone Device
  32. 32. 1. With Smartphone we have access to more detailed data from customer 2. With these data we can extract more customer personalized information 3. With these information we can achieve individualized DP strategies Shopping History Purchasing Habit Current Location Individualized Dynamic Pricing Strategy Prefer Brand
  33. 33. Individualized DP Strategy Dynamic Pricing Overall Demand Individualized DP Individual Demand InconsistentTailored Strategy By Smart Phone
  34. 34. Individualized Dynamic Pricing • For one customer, buying stuff at a lower price is not saving money. Not spending unnecessary is saving money. • Except the current market-based Dynamic Pricing strategy, customers should have their own dynamic pricing strategy, to show their own demand level for a certain goods. This individual- oriented DP strategy can be another price reference for customers.
  35. 35. Individualized DP Individualized Dynamic Pricing ------ Market Dynamic Pricing ------ • For customers, buying decision is not only depend on the market DP, but also depend on themselves DP • When the customer price is higher than the retailer price → BUY • When the customer price is lower than the retailer price → NOT BUY
  36. 36.  1. Optimize profits through real-time personal pricing adjustments  2. Generating more customer Loyalty  3. Build enhanced profiles of customers for the retailers Advantages of Individualized DP
  37. 37. 2. Price Display by Smartphone 1. In the future, smart can replace the traditional paper or electronic screen price tag and act as the price display tool. 2. Customers can obtain the dynamic price as well as other information of goods by just tapping the NFC tag or scanning the QR code.
  38. 38. 1. More Flexible, accurate and Real-time information 2. No need electronic screen, save the cost of retailers 3. Show more information of goods Advantages of Price Display by Smartphone
  39. 39. 1. Smartphone design & manufacturing with NFC identification function 2. NFC chip manufacturing 3. Mobile Apps to read QR code & NFC tag, combined with price analysis function 4. Data processing platform that deal with mass dynamic pricing data analysis Future Opportunities of Price Display by smartphone
  40. 40.  Could charge different prices depending on the availability of parking spaces in a neighborhood. • SMART METERS FUTURE APPLICATIONS AND OPPORTUNITIES
  41. 41.  Earlier purchases charged lower , subsequent price increase with time.  Will help farmers to sell off their produce as early as possible and overcome the problems of loss due to damaged produce because of lack of storage facilitates. • AGRICULTURAL HARVEST PRICING
  42. 42.  Prices in Toll Lanes should be controlled by time of day, day of week, special holidays, weather, congestion, etc. • TOLL LANES
  43. 43. CONCLUSION • Dynamic Pricing is a good method to provide a star match between the merchandise or services and its potential customers. • It can scrutinize the most urgent demands, help the customers to find the desired products and solutions at the desired price and also offers the best benefits to the merchants to make optimal profits. • It guarantees both sides of the deal-makers gain its best benefit often. It is a win-win game. • Future development of the technologies will offer more opportunities for dynamic pricing.
  44. 44.    industry/   ecommerce-retailers/     REFERENCES
  45. 45.           retailers/   REFERENCES
  46. 46.   get-it-right/     affect-ecommerce REFERENCES