Most companies optimize prices to either gain marketshare or maximize profit. When marketshare is the goal, costs can largely be ignored–assuming you are a company such as Uber or Amazon and can afford to lose a lot of money for a long time, you price primarily to stimulate demand. When profit is the goal, you have to know your costs to set prices.
Imagine putting on a performance for an audience–but nobody shows up. Sucks, right? Some people just lived with that reality, figuring, it's normal. But Kevin Stutz, CEO of Ace Rent A Car, thought differently.
Here's how Kevin took on an industry scourge–the no show–and won. With real numbers.
Would you promise to send a rocket to Jupiter before you proved you could get one into space at all?
Have you ever wondered, what would happen if we made a big change to pricing? I don't mean try ending a few prices in $0.99 or $0.95. No. I mean changing everything!
Ever wonder why some companies can charge different prices at different time–like United Airlines, or Uber–while others, like Walgreens, don't? Academcis have long had 5 tests to determine if dynamic pricing could work for an industry. With machine learning, we're reducing that to just 2. Read on to learn what separates dynamic industries from those stuck in the 20th century.
Does price optimization work for today's businesses?
Price optimization means improving the performance of the price aspect of your marketing mix (also known as the 4P's, product, price, place and promotion). Price optimization leverages data to drive more revenue or margin by adjusting the price or prices customers see and pay.
Many people think dynamic pricing is crazy–witness this 50x surge Uber once saw. At today's exchange rate, that 425 KR is $50 USD–per minute. But is customer reaction to this the biggest challenge?
Price is one of the four key elements of your marketing mix. It’s an incredibly important one because it determines how you position your product or service, and also affects other elements of marketing, like product features, channels, distribution, promotion and more. So, knowing how to price products is crucial – if you don’t know how or don’t have a working strategy in place, it could be costing you a fortune without you even realizing it. How do you go about assessing whether or not you have a solid a price optimization strategy in place?
Behavior based pricing is the future: it means leveraging what you know, and only you know, to compete against the big guys. It's simpler than you might think, and can impact your top and bottom line within weeks. But, most people don't know what it is or where to start.
This excerpt from our book explains how to use behavior based pricing to drive growth and margin.