Dynamic Pricing Strategies


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Dynamic pricing, the practice of setting the prices based on the estimated buyers’ willingness to pay has direct impact on profit. With the advent of technology, especially internet, dynamic pricing has evolved to be one of the most innovative pricing strategies. Marketers are now able to gather wide range of information from their customers ranging from where they live, what they buy to how much they are willing to pay. This information has enabled marketers to adjust their prices to correspond with that the consumer is wiling to pay. Although this practice has become largely effective with the new technology, it is not new in the field of marketing. It is akin to what has long been practiced as price discrimination –where marketers have been charging different prices to different consumers for similar goods.

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It makes economic sense to charge low amount in low season and utilize the room rather than live the room vacant. In airline industry it makes sense for a company to sell the air ticket at lesser price rather than travel in an empty seat. Varying prices depending with the season allows the producer to earn an incremental profit.

Overall, dynamic pricing allow for the maximum utilization of a society’s resources. In addition, producers are able to maximize their profit when they full utilize consumer surpluses. With advance in technology, dynamic pricing will remain a key pricing strategy, at least for unforeseeable future.

References

McAfee, R.P & Velde, V. (2010). Dynamic pricing in the airline industry. Pasdena: California Institute of Technology.

Jacobs, F.R. et al (2010) Operations and supply chain management. New York: McGraw-hill Irwin.