DYNAMIC PRICING

By ,

VAISHNAVI SUBRAMANIAN (A0136404N)

GAO SHAOHUA (A014 7703H)

FANG QIANG (A0138172H)

WANG BIQING (A0138150N)

CONTENTS

What is Dynamic Pricing?

Static vs Dynamic Pricing

Evolution Over the Past

Current Drivers and Trends

Future Trends

Future Applications & Opportunities

Conclusion

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

STATIC VS DYNAMIC PRICING

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

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 dailyfor 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

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.

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

• 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

BETTER DATA ANALYTICS SOLUTIONSFor 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.

BETTER DATA ANALYTICS SOLUTIONSSome 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

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

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.

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.

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.

• 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

• 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

• Travel websites often offer more expensivetrips to the Apple computer users, comparedto 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

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.

Impacts of smart phones on dynamic pricing

1. Mobile Networks

2. Real-time Physical Location

3. Networking Information

CURRENT TRENDS & DRIVERS

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.

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

• 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

• 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

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

• 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

• 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

• 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

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

• 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

Dynamic Pricing Future Trends

1. Individualized Dynamic Pricing strategies

with Smartphone Data

2. Price Display by Smartphone Device

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

Individualized DP Strategy

Dynamic Pricing Overall Demand

Individualized DP Individual Demand

InconsistentTailored Strategy

By Smart Phone

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.

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

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

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.

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

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

Could charge different prices depending on the availability of parking spaces in a

neighborhood.

• SMART METERS

FUTURE APPLICATIONS AND OPPORTUNITIES

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

Prices in Toll Lanes should be controlled by time of day, day of week, special holidays,

weather, congestion, etc.

• TOLL LANES

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.

https://en.wikipedia.org/wiki/Dynamic_pricing

http://www.slideshare.net/BlueYonderAnalytics/what-is-dynamic-pricing

https://mpk732t22015.wordpress.com/2015/09/03/dynamic-price-strategy-of-the-airline-

industry/

http://alumnus.caltech.edu/~amir/hotel-dyn-pricing-final.pdf

https://www.wiser.com/infographic-ready-for-takeoff-why-dynamic-pricing-is-a-must-for-

ecommerce-retailers/

http://www.slideshare.net/tombacon/dynamic-pricing-48006422

http://www.datadial.net/blog/the-growth-of-mobile-ecommerce-payments/

http://www.paymentscardsandmobile.com/banks-hold-key-to-mobile-payment-adoption/

http://media.ofcom.org.uk/news/2015/cmr-uk-2015/

REFERENCES

http://www.wired.com/2014/11/online-price-discrimination/

http://www.ibtimes.com/mobile-devices-are-changing-ecommerce-heres-how-1297265

https://newsroom.uber.com/the-effects-of-ubers-surge-pricing/

http://www.vox.com/2014/12/18/7415055/parking-dc

http://web.uvic.ca/~pcourty/IO%20Pricing.pdf

http://www.pfsweb.com/blog/is-the-qr-code-dead/

http://www.tinbergen.nl/~moraga/LawEcon5.pdf

http://web.uvic.ca/~pcourty/IO%20Pricing.pdf

http://www.progressyourprofits.com/business/buy-now-triangle.html

https://econsultancy.com/blog/65327-why-dynamic-pricing-is-a-must-for-ecommerce-

retailers/

http://blog.wiser.com/retailers-ned-know-dynamic-pricing

https://www.ecommerceresult.com/en/recommendation-engine

REFERENCES

http://multichannelmerchant.com/ecommerce/future-dynamic-pricing-21112015/

http://www.zdnet.com/article/the-future-of-retail-is-dynamic-pricing-so-why-cant-we-

get-it-right/

http://www.forbes.com/forbes/welcome/

http://whatis.techtarget.com/definition/dynamic-pricing

http://www.blue-yonder.com/en/solutions/dynamic-pricing.html

http://www.business.com/ecommerce/what-is-dynamic-pricing-and-how-does-it-

affect-ecommerce

REFERENCES