INTHEBLACK June/July 2024 - Magazine - Page 37
“I have had clients who bought an
off-the-shelf software program that tried
to predict demand and then would set
prices to optimise profitability, but it kept
lowering prices, so competitors would lower
their prices, so it would lower its prices, and
so on,” Wood explains.
WHEN THE PRICE IS NOT RIGHT
While dynamic pricing might sound like
a very profitable approach, it is not suited
to every situation, says Ruth Callaghan,
chief innovation officer of strategic
communications business Cannings Purple.
“There are two golden rules with dynamic
pricing – the first is to be fair, and the second
is to communicate well,” she says.
For dynamic pricing to be effective and
well-received, businesses must have a solid
foundation in their regular pricing, ensuring
it accurately represents the value offered.
This approach avoids negative perceptions
associated with price gouging and contributes
to a fair and transparent pricing strategy.
“Customers will react badly if they think
you are not being fair. If you are trying to
maximise the value of airline seats in short
supply, it is fine. It is less fine if there is
a pandemic, and you price your toilet paper
outrageously high. That is seen as price
gouging,” Callaghan says.
It is a real risk, considering that 73 per cent
of consumers say that they will switch to
a competitor if they have multiple bad
customer service experiences with a company,
according to data from Zendesk.
“If you do not articulate the value that
you are providing your customers, then there
is a real potential they will switch or that
your reputation is going to get some damage
if they feel like they have not been treated
fairly,” Callaghan says.
One example is Uber, which has faced
opposition with its use of dynamic pricing.
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