In the past years, Americans have been very inventive with the “dynamic pricing”. Walt Disney increased the prices of his theme parks (Disneyland included) during the “busy days”; tickets for the American Airlines were adjusted to match the current demand and the number of free seats on the plane, as well as the time of reservation. Basically, the dynamic prices were set according to the demand of the people, and the reaction after sales were amazing; people still bought what they needed and the companies ended up earning more money and having a better-conducting business. But how is this even possible? Let us start by explaining the basics.
What is Dynamic Pricing?
Understanding the definition of dynamic pricing requires a basic knowledge in microeconomics. Namely, if for a given price the demand is higher than supply, a higher price could be charged and vice versa. But, when there is a high uncertainty of demand, supply or quality, companies use dynamic pricing to determine the appropriate price of the product. For instance, as previously mentioned, Disneyland’s services are now going to cost you $5 less during a “slow day” and $20 more during a “busy day”. This might seem like a scam, but it actually is not, it is a plain usage of the dynamic pricing, and people are fine with it.
Dynamic Pricing is Applied Everywhere
The usage of dynamic pricing has now stretched all the way from industries and local governments to small businesses and travel providers. But perhaps the best example is the usage of HOV lanes for single drivers which are based on the traffic conditions. Many cities use the dynamic pricing for HOV lanes, and drivers still pay the extra fee. In their world, time is money, and if they can reach their destination faster, they will pay the HOV lane fare. Also, take a look at the parking spots: during a business day, the prices of parking spots are huge, yet one can barely find a free spot. Again, this is a pure example of dynamic pricing usage.
Dynamic Pricing in Sports
Lately, the fastest growing usage of dynamic pricing has seen its peak in professional sports. In 2009, San Francisco Giants became the first professional sports franchise to implement dynamic pricing. They hired a software data analytics from Qcue to help them boost their ticket sale. Only in 2010, the revenue increased by $7 million, and all thanks to the predictive algorithms. That was only the beginning, since they continued to do so, even though in sports, dynamic pricing is a one-way street, meaning that during a high demand, the prices of tickets are going up but, during a low demand, the prices are not dropping below their normal rate. This is the reason why the usage of dynamic pricing is especially beneficial in professional sports.
Qcue reported to have helped their clients increase revenue by an average of 30% when the demand is high, and around 5-10% while the demand is low. Big companies already have their tools and software which they use to research their customers and see how they behave in correlation with their products. This gives them the opportunity to use predictive algorithms to boost their sales and increase revenue. Small businesses have the same opportunities and by using and implementing a bi software, they can also see how their customers behave, understand their wishes and demands and in the process, increase their yearly revenue.
The future of dynamic pricing surely looks bright, since many consumers are willing to ignore that small change in price for their personal satisfaction. Dynamic pricing will gain increased traction in the years to come, and the world of sports and business are just a beginning.