How Hotels Are Pushing For Dynamic Pricing

HotelMarketing uncover how as demand grows, hotels push for dynamic pricing with corporate clients for the year 2015 and beyond. According to an updated forecast by Advito for 2015, hotels increasingly encourage corporate clients to switch from fixed negotiated corporate rates to dynamic pricing. And some go even further by undercutting negotiated rates and offering business travellers the lower pre-paid rates normally associated with leisure stays.

Hotels know corporate clients are still nervous about authorizing too many trips and are looking to substitute travel with technology wherever it makes sense. On balance, therefore, rates are likely to grow in 2015. While some hotels will push for more, increases will be modest outside of the world’s busiest business cities (such as New York and London) where rate rises will continue to be much stronger.

Rate growth will be only 1-3% in many Asian countries, including China, where growth in demand and supply will be well-matched. The same range is expected for most of Europe, where negotiating opportunities remain strong for buyers. Even German cities that have traditionally been ultra-expensive during trade fairs are not selling out as they once did, giving buyers a chance to secure good rates year- round. The Americas will see most of the highest increases. Rates in the U.S. and Canada will rise 3-4%. In Latin America, a combination of inflation and fast-expanding business travel markets will fuel rate rises of 8-10% in Argentina and 6-8% in Brazil. However, rising travel costs are persuading more companies in Latin America to control their spend; better management should help offset some increases.

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The Effect of Competition on Pricing Strategy

Chron understand when two products have similar core features, but are produced by different companies, competition results. Competition-based pricing strategy involves setting your prices based on your competitors’ prices rather than on your own cost and profit objectives. Before pricing your product, research your competition to figure out where you fit in or what to change. The following can help control competition:

  • Price Environment
    Your price environment determines the level of control you have over competitive pricing. Price environments are market-controlled, company-controlled or government controlled. A market-controlled environment shows a higher level of competition, similar products and little price control by individual companies.
  • Competitive Product
    Competitive pricing relies on three product styles: lasting distinctiveness, low cross elasticity and perishable distinctiveness. Products with lasting distinctiveness are ones that will always stand out from the crowd, such as medicines protected by patent laws. Low cross elasticity means the demand for the product will rise, such as with a software upgrade. Products with perishable distinctiveness are unique in the beginning, but fall to medium distinctiveness after a period of time and would include popular technology products.
  • Price Range
    Every product has a price range; look at your competitors pricing to find the range for your product. To decide where you fit on the current price range, or if you should choose something outside it, compare your product to those of your competitors. Customers use the existing prices as a guide to what is normal or considered a good deal, so be prepared to handle the consequences of pricing outside the standard range.
  • Product Comparison
    The products with the most features can charge the highest price, so research what your competitors are selling first. Core features of all the products should be similar, if not the same, so you need something special to raise the price of your product. If, instead, you would rather be the cheapest, let that be your special feature and leave everything else out.
  • Target Market
    Figure out what market your competitors are targeting, and pick a different one. Even though the products are similar, you can charge more if you design for a specific group. Certain markets will always pay higher prices, or are willing to pay for the perceived exclusivity, so take advantage of that in your marketing strategy.
  • General Strategies
    Your price relationship to your competitor falls into one of four categories says Laurus Nobilis at Biz Development. These are pure parity, dynamic parity, premium pricing strategy or discount pricing strategy. In pure parity, your price always equals that of your competitor: they set the price and you match it. Dynamic parity happens when you pick a competitor and keep the gap between their price and yours the same. Premium pricing is higher than the competitors, but you gain a position of higher perceived benefits. In discount pricing, you always keep the price cheaper than that of competitors. Discount pricing is most commonly used by generic or store brands.

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Pricing Fashion with Science

McKinsey&Company highlight the reliance on subjective pricing prevails in the marketplace, even in the era of big data and online price transparency. Most merchants price items with embellishments higher than ones without these extra features, although they typically do not know how much of a premium the embellishments should command.

Pricing is one of the most challenging areas for fashion apparel retailers due to high SKU complexity, limited item comparability, and frequent flow of new collections. Historically, pricing has been more art than science. However, the ability to apply statistical approaches to even highly seasonal products such as fashion shorts, or high-priced goods such as luxury handbags, can drive substantial improvement in sales and margins. Although technical pricing solutions have existed for more than a decade, most merchants are sceptical of their effectiveness. Instead, merchants prefer to rely on an intuitive sense of what the consumer would be willing to pay, competitive benchmarking, and margin contribution.

McKinsey&Company have found a model which enables merchants to enhance their business judgement and gut intuition with science. This model is called heuristics and it mirrors many of the trade-offs that typically run through merchants’ head when pricing an item. The model uses internal and external metrics that incorporate a wide range of relevant factors. It applies a rigorous statistical analysis to filter those factors and tailor the metrics to fit each retailer’s business strategy.

Retailers can also apply this methodology to understand the optimal number of price points within a category. Most retailers use few price points, out of habit and familiarity, and there is often a correlation between this small number and lower average ticket prices. Other retailers resort to too many price points, generating consumer confusion over differences in product value. By optimizing the number of price points they use and ensuring that their merchandise selection aligns with these new prices, retailers could capture a tremendous amount of incremental gross-margin opportunity. Although this approach relies on the “science” of external analytical tools, it remains rooted in the “art” of merchant expertise and knowledge. Because it is based on strategic decisions for weighting indicators, it is a flexible model that can easily be updated to keep pace with changing business strategies.

As long as fashions change with the seasons, there will always be an element of unpredictability in apparel pricing. Retailers have much to gain by harnessing the wealth of knowledge they have at their disposal and applying these innovations to their apparel pricing strategies.

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Will Amazons’ New Pricing Strategy Be Successful?

Tech Crunch see how giant E-commerce retailer Amazon is pushing hard to pick up more business during the holiday season, wants you to make a deal. Taking a page from the likes of eBay and Priceline, it is introducing a new dutch auction-style feature. Users can now “Make an Offer” on a product, suggesting a lower price to the vendor than the one listed on Amazon.

Amazon is rolling this out across about 150,000 items initially — one-off products ranging from sports and entertainment collectibles to art — and it says that the plan will be to extend this to “hundreds of thousands of items” by 2015.

The move seems to be a clear bid to compete against the likes of sites like eBay for more business for its marketplace from third-party vendors, who can use this as a way of shifting items that may have more flexible pricing, or for items where the value has not been firmly established because of their one-off nature.

Importantly, this gives also buyers somewhat more transparency on pricing, and keeps the negotiation within Amazon’s walled garden rather than being taken offline, where Amazon would get no commission, or finished before a sale is made.

The other person this is intended to help is the third-party merchant that sells on Amazon’s marketplace. This is one more way to connect customers to a merchant, and once you are on a product page the merchant may choose to recommend other items he/she is selling that you might like to buy.

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How To Build A Loyal E-Commerce Customer-Base In The Age Of Dynamic Pricing

Customer Think delve into views from a retailers point of view and see there has never been a better time to offer great pricing deals for your customers.A decade back, traditional retailers faced onslaught from the e-commerce retailers who could afford to cut down on their selling price owing to the lower costs incurred by them on holding inventory and distribution. Today, the online retail market has itself matured so much that these businesses are not competing against traditional retailers but among themselves.

While dynamic pricing is an exciting way to acquire customers, it also makes it difficult for retailers to build a loyal client base. Customers today have a wonderful array of choices when it comes to picking a website to shop from. There are always instances when you may not be able to sell some products below a price-point for the fear of selling at a loss. How can you build a loyal customer base for these products? The following strategies may help:

  • Train customers to look beyond the product price
    Customers are likely to engage in price comparison only when you have the same product being sold at different prices by different retailers. The trick here is to offer customers additional value that cannot be measured in dollar terms. One of the most common ways to achieve this is by offering free support, insurance or product training to the customer, depending on the product category. This way, retailers can build a clientèle that starts enjoying the additional perks of shopping at your website and therefore does not come to you for the price.
  • Set-up A Data-Driven Newsletter Strategy
    Email newsletters are one of the most effective tools in engaging with your existing customers. Yet, a lot of retailers do not invest the time and resources in crafting the right newsletter strategy. A major chunk of online retailers continue to send generic mass-emailers to all their subscribers with the hope that a percentage of these recipients convert into buyers. This is despite the fact that data-driven newsletters have been proven to offer higher conversion rates.
  • Make your product more affordable than it really is
    Not everyone can afford to spend $999 on a new computer. You could make this purchase affordable by tying up with banks that offer EMIs on credit card purchases. This way, the customer who may have otherwise found a $999 purchase unaffordable could now make the payment over a six month period. Such tie-ups are a win-win for all parties involved – customers get their product at more affordable monthly price, banks win a new customer and the retailer gets to offer their product at a more affordable price. Such partnerships also motivate the customer to reach out to you for future purchases.

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The Effects of Dynamic Pricing

Newsline raises the question will consumers punish brands that introduce dynamic pricing? They see one of Europes largest cinema chains Odeon announcing their innovative new pricing plan. Odeon are planning on charging an extra £1 to watch the latest blockbusters, compared to their price for smaller/older films. They join a long line of brands who have introduced dynamic pricing.

At first this seems quite uncontroversial – it’s a simple case of supply and demand in action. However, consumers don’t necessarily react to pricing changes in a reasoned manner. They are far more emotional than the rational caricature presumed by economists. People do not behave in the rational manner classical economics predicts and accept low offers. Most receivers reject offers of less than 30%. Receivers are prepared to make an economic sacrifice in order to punish those who transgress their notions of fairness. The following can help you learn about the effects:

  • A minor price rise may result into unhappy customers due to the pricing being perceived as unfair. Coco Cola certainly learned this the hard way when they received a huge amount of negative publicity after they dabbled with the idea of vending machines which charged more on a hot day.
  • Consumers perception of fairness are fluid. Dynamic pricing seems to become more acceptable over time as consumers become accustomed to it and begin thinking it is the ‘natural’ state of the market.

It will be interesting to see whether their pricing model will be accepted. Would you pay more for a new film and less for an older film?

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Key Questions To A Professional Price Strategy

By guest blogger: Christoph Meili at Input Consulting AG

If you ask a CEO if he has got a corporate strategy, he will smile at you. If you ask him about his price strategy, chances are high that he cannot explain to you how his company is dealing with pricing and price management. Our consulting experience shows that in many companies, pricing is not a strategic topic.

On the contrary all activities are often focused on the optimization of price setting, rebates and conditions in a truly operational manner.

The consequences of a missing price strategy are various:

· Missing link between corporate strategy and operational pricing
· Difficulties in determining the resources and capabilities required for a professional pricing
· Deficient guidelines for price setting and price changes
· Lack of efficiency in pricing decisions
· Missing objectives to measure and benchmark pricing performance

A useful and pragmatic approach to define your price strategy is to answer these five key questions:

1. Pricing goals: What are the objectives that should be achieved in the context of pricing?

2. Price positioning: What is the desired price-value perception in the market compared to the main competitors?
3. Price discrimination: Which price spreads can be realized if prices are differentiated between customers, channels, countries etc.?
4. Price behavior: What are the strategic guidelines concerning price behavior along product life-cycle and against changes in competitors’ prices?
5. Bundling versus individual pricing: How is bundling used in pricing? For example: are services included in the price of a product?

As a second step, your answers have to be transformed into guidelines for everyday pricing decisions.

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How To Efficiently Raise Your Prices

Entrepreneur discover how of the 28 million small businesses in America, 21 million lose money. The question that remains why do so many people lose at the game of business? The number one reason businesses fail is, simply due their prices being too low. They do not sell their products at prices high enough, therefore operating on margins so small they are unable to expand. Unless you are extremely well capitalized, you should not attempt to offer the lowest prices in your market. Trying to match or beat others on price is a suicide mission, not a practice. Your business needs increased margins to expand and service customers. Price matters and you must raise yours. The following will help you understand how to efficiently raise your prices:

  • Just increase price
    You don’t need a reason or justification to raise prices, just do it. Try increasing your prices,even a little, and see if it sticks. If you are scared to raise the price, bundle products and services to increase your average sales price.
  • Magic of alternatives
    Choices allow the buyer to make sense of the price. When you show the price of a product or service, always offer alternate products or services to make logical sense of price. Provide a higher and lower offer on each side of every offer.
  • Menu pricing
    Organize your services on a menu with pricing highest to lowest. People believe what they see more than what they hear. I did this in the highly competitive automobile industry. It increased profits $400 per car. Contrary to popular belief, selling your products or services at the lowest price doesn’t make customers more loyal or happier. The customers that cause you the most trouble typically are the one’s who paid the least.

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Pricing Tips For The New Year

Miami Herald unveils how best to capture higher fees for your services/prices in 2015:

  • Do not start with the price
    When you do, you run the risk that your potential clients will quickly determine that they can’t afford to use you. Never talk about price until you have demonstrated that your clients can’t afford to not use you.
  • Take time to learn what your client needs
    If you want to command higher fees, the best thing you can do is help your clients explore exactly what they need. Develop an understanding about how your work addresses their deepest concerns about their business. Then, draft your proposals accordingly.
  • Position your fees as an investment, not as an expense
    Your proposals should clearly quantify the financial benefits of your projects. Once you have done that, you can put your fees in their proper context — as an investment with a concrete ROI.
  • Establish and maintain relationships with decision makers
    Do not just make decisions  with subordinates, or the human resources department or accounts payable. Other than your own expertise and passion for adding value, your personal relationships with the key executives who control budgets is the most important asset in your practice.
  • When you meet price resistance, don’t lower your fees, remove value instead 
    Offer to reduce the scope of the project or shorten its duration. Don’t lower your fees without removing a piece of the project. Doing so undermines your price integrity and sets you on a spiral down a slippery slope.

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    The Ethical Minefield of Pricing

    Investigo unravel how pricing is an area of business that has advanced hugely over the last 10 years, particularly in the online space. Companies now have access to huge amounts of customer data on which to base their pricing strategies. Using this data to maximise value or achieve the business’ aims is normally seen as a positive thing, however sometimes this data can cause a PR backlash where the line between what is ethical and what is not appears to have been breached.

    The main crux of pricing ethics is about establishing the balance of power between the producer and the consumer. People will say that if the price is too high then people will not pay, however that isn’t always the case. Look at the sports industry, where businesses prey on brand loyalty to charge higher and higher prices (have you tried to purchase an Arsenal ticket recently?). However, it is a difficult area to legislate against considering it is very challenging to prove when a price is “too high” or a business’ pricing strategy is “predatory” so it often comes down to practising self-regulated ethics.

    At the forefront of online pricing strategy is the concept of dynamic pricing and within this, price discrimination. The concept is simple – an identical product offered at different prices for different consumers aimed at finding the maximum that a consumer is willing to pay. But why should one person pay more for a seat to a concert than another for the exact same seat? The customer data available may suggest that this person may be able to afford to pay a higher price than another person, however is it right to charge them more because of it? Especially when the product is still exactly the same?

    This is an interesting area to explore. Relying on customer data to decide which consumers pay more than others is based on the premise that the business knows exactly what the consumer can afford and that the data is 100% accurate. For example, someone with a lower income may indicate that they earn a higher salary in online questionnaires or through recent spending habits, which may increase the price they have to pay for a product, when in reality this is not the case.

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