Dynamic Pricing – A Real World Example

July 16, 2009

In this post titled; Everybody Knows, Right? I referenced a Financial Post column by Rick Spence, on dynamic pricing.

My thanks to Rick, he posted a comment on that post that he had received some negative comments on that original Financial Post article.

That is unfortunate, and here is why.

Time Vs. Availability

One common axis that can be hinged on dynamic pricing is availability. That is one that we are familiar with  from the airline industry. As available seat numbers go down, price goes up.

In many small to medium enterprises, this axis of availability can be one that really generates negative reactions and bias. If you sell ski boots, I don’t want to pay twice the price because you are down to the last two pairs!

Another Axis; Time

For managers in the small to medium business space, one resource we can’t save, earn or buy is time. And dynamically pricing using time as an axis does not generate the same resentment. The value of time can often be justified.

In a simple example, an invoice that gives you a discount on a pay-before date? Dynamic Pricing.

My dry-cleaner? overnight is more expensive than next week. Again, Dynamic Pricing.

In both of these cases you pay less than the other guy for the same good or service based on the axis of Time

Another case – Because it can go both ways!

I know a former manager (now retired) at an automotive dealership service department.

On days when his service bays were not fully booked, he still had union service techs on the clock.

His solution?

He would hover around the parts desk where the Do-It-Yourself crowd bought parts to fix or upgrade on their own cars. He then simply offered them on the spot to do the work for them immediately, at a fraction of the standard bill rate.

Even if the margin was only a fraction of the regular, it was still margin, and kept the tech’s working.

So here is time from two angles, One; keeping paid techs working, and second, offering value to the customer. Sure, the DIY person could do that job on the weekend, but presenting the value of having it done in 40 minutes?

The SMB Takeaway

So in your business – when time is in the equation,there is value there. Is there a time element that could be of value for your customer base?

If there is, don’t automatically assume that they won’t pay for that value.

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2 Responses to “Dynamic Pricing – A Real World Example”

  1. elliotross Says:

    John, Thanks for your comment!

    In general I would agree with that – in this case though, an individual would have to know that the service bay was not fully booked, and be shopping for a part at that precise time.

    You are definitely correct that you don’t want customers waiting for some regular ‘happy hour’

    Best Regards

  2. John Burland Says:

    Another case – Because it can go both ways

    Absolutely valid, but the challenge here is creating pricing fences. The perception rapidly becomes fixed in customers’ minds (especially the value-oriented ones that you’re targeting with this action) that the price for a unit of resource is now x-50% and it doesn’t remain in that tight circle of customers that you’ve queue-combed at the parts desk – all of a sudden, it’s all over town.
    Making an offer clearly conditional helps to mitigate the problem, but you can’t get away from the fact that prices are light chewing gum – once they’re on the ground it’s difficult to get them off.

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