By Maitane Zarate on 9/23/19 3:38 PM
1. The importance of pricing:
You can’t deny it (you shouldn’t). Regardless of your product or service, pricing is key to your business. It doesn’t really matter if it’s shoes or on-line tickets you’re selling. It is important because we live in a world driven by value and that’s exactly what pricing is: Finding the sweet spot between the value for which your product/service is worth making, and the value that justifies the customer’s investment on it.
The tricky thing about value is that it’s perceived very differently by everyone. While you look at those 30€ online tickets for the spa thinking “Yikes, what a rip-off” another person is ready to buy what they feel it’s a great bargain.
And while pricing is the reflection of everything you do as a business (from sales and marketing to product development or providing goods and services) for many organizations out there, price-related decisions still come second. Even some of the most innovative companies which are continuously optimizing their processes, products and services with top-notch technologies are still offering the same products and experiences at an identical price for people who have completely different perceptions of their value.
And that’s where they go wrong. That’s when they lose a big piece of the cake. Because sure, there’s a lot you can do to increase the revenue of your company, but profit? Optimizing profit is merely a pricing game. And if you play your cards right, it can completely shape your business’ overall future profitability.
But don’t just take our word for it. Numerous studies show the huge impact price optimization can have on a company’s profit. The right price can boost profit faster than increasing volume will, the wrong price can shrink it just as quickly. Take as an example this study by Michael V. Marn and Robert L. Rosiello. After studying 2.463 companies they found that a mere 1% improvement in price results on a 11.1% increase on the operating profit. That translates to a great deal of added money on the table from which the whole company can benefit.
So now I ask you, what are you doing to optimize your pricing strategy? In which ways are you impacting your business’ operating profit? How do you know you are offering your services or products at their optimal price?
It’s time to stop guessing and start finding answers to these questions.
… But how?
2. Using dynamic pricing and Machine Learning systems to optimize your pricing.
You’ve probably heard about dynamic pricing by now. Not to mention AI or Machine Learning, they’re recurrent topics not only on our blog but pretty much elsewhere. You might even be rolling your eyes right now thinking “here we go again with the glorified buzzwords of our time”. Fair enough. But they’re taking the spotlight for a good reason. They’re reshaping markets and they’re doing it fast. Which by the way also includes your market.
What this basically means, (and I’m pretty sure Darwin would back me up on this one) is that whether you like it or not, you will have to change along with the market or your business will slowly stay behind and perish. You don’t want the company that you are putting so much time and energy into becoming the dinosaur of your competitive market, do you?
Then let me give you a glimpse of what artificial intelligence and machine learning systems can do for you and which dynamic pricing applications are currently available:
Plane tickets on airline websites, hotel rooms, Uber’s real time pricing, or even happy hours at your local bar, are all examples of dynamic pricing. These businesses set flexible prices for products or services based on current market demands.
As opposed to static pricing (which keeps prices absolute) dynamic pricing adjusts them to offer customers different prices based on external factors and their individual buying habits. These price adjustments can be based on things such as the customer’s location, the time of the day, the day of the week, or the level of supply or demand in a certain moment. This enables you to keep pace with constantly changing market dynamics.
By analyzing vast sets of data from a variety of different sources, Machine Learning systems can determine patterns in order to predict what the customer is willing to pay and how responsive they might be to special offers.
However, while dynamic pricing fits best for long decision-making cycles (in general you book your hotel room or airplane flight with some time in advance), it’s real time pricing what applies best to the tours and activities industry, since these types of bookings (for museums, zoos, theme parks…) are more likely to be made within a shorter span of time. In fact, from all the bookings we’ve tracked at Convious for the year 2019, 30% have been for same day visits, and 34.6% have been “1 day in advance” bookings, whereas bookings made with more than a week in advance have been minimal (less than 3%).
With real time pricing you’ll be able to set the optimal price at the right time in response to factors such as weather, seasonality, inventory (just to name a few) etc., all in real time and while taking into account your business goals.
Being able to react to demand in real time is also a great way to solve your visitor spread or seasonality issues.
For example, let’s say your weekend tickets are always in high demand and you’ve got limited availability. The algorithm will adjust and increase the prices to control demand and maximize profit.
Or on the contrary, you’ve got problems to fill-in seats at your stadium for games played during lunch time? Only a few people visit your museum after 8 pm? Don’t worry, the algorithm will adjust and drop the prices to increase sales for those specific time slots.
So in essence, you set boundaries and AI reacts to changes in the market, helping you maximize resources and profit. Pretty neat, right?
Actually, the benefits of AI-driven pricing are many: increased revenue and margins, higher conversion, control over the market, personalized prices… AI-powered pricing solutions are able to track billions of data points and buying trends and find for each of your products the most competitive and optimized prices. And the best part? That they’re continuously learning and improving so you and your team can always be ready for what comes next.
Stop limiting your business by relying on manual and time-consuming processes to make your pricing decisions. Instead, bet for an automated and smarter approach, that will allow you to focus on what really matters:
Your customers and their satisfaction.
In the end, isn’t the tours and activities industry about offering great and enjoyable experiences to your visitors? Well then, the least you can do is offer your online visitors a price and online experience that meets their expectations as much as the venue itself.
3. Pricing is a process. Automate it, make it smart.
In just a few years from now businesses will be commercialized almost entirely online. So how successfully you manage your website will have a direct impact on how successful your business is.
I want to assume your business has some sort of online presence and a very appealing and user-friendly website. That means that you are already gathering a great deal of data every day. Number of visitors, the channels that they come from, clicks, views, bounce rates, historical data… and so much more. And having lots of data is great. But it’s not of much use if you can’t read into that data and get clear insights out of it, is it? Analyzing all of this information manually can become very time-consuming and inefficient in terms of price management.
On top of that, price changes can sometimes be scary or delicate, to say the least. And we get it. What if it’s the wrong move? Will the business suffer? What if a small change ruins the whole month’s revenue?
The good news is that there’s tons of different start-ups out there who offer machine learning and AI-powered solutions to eliminate this pain. To help you implement dynamic pricing as smoothly as possible and take out the fear of pricing changes by leveraging the latest AI technology.
Our real time pricing solution for instance, is implemented by simply adding one line of code to your website. As easy as that. From that moment on, our system starts collecting data and with that information and taking into account factors such as weather, real time demand, seasonality, inventory and so on, calculates your optimal prices in real time.
It's even better when you also provide the Machine Learning system with your historical data, since this helps the algorithm to already track behaviours and create patterns out of the given data points, so it doesn’t have to learn from scratch. Our algorithms update on a daily basis, and the more data these self-learning algorithms collect with time, the more smart and precise they become!
This way, since you’ll be able to react to fluctuations and changes in the market, your business can gain an ideal competitive advantage, because your prices will always be updating to become more competitive and optimized.
All your efforts will be measurable, and our actionable data insights will make it easier for you to manage, control and track your performance so you can make well-informed and smarter decisions over your pricing strategy.
Not convinced yet? That’s totally fine. Not everyone is ready to jump head-first into dynamic pricing. There’s a usual concern about not understanding how the software works, the data-sharing, the impact these price changes can have on the business’ revenue and image… we hear you. Which is why at Convious we want to maximize transparency by offering a 20 minute demo in which our friendly team will answer all of your questions and give you a detailed explanation of how it all works.
Moreover, if you are curious about the results you could achieve with Real Time Pricing, you can also sign up for a trial period with us and see for yourself the game-changing results of our AI-driven pricing solution without any further commitment.
Ready to take your company to the next level? Get in touch to learn more about what we can achieve together.