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Case Study-Dynamic Pricing - Strategies
for Enhancing Profitability
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Case
Study: Dynamic Pricing - Strategies for Enhancing Profitability
Introduction
Price
determines the profit a product and service providers derive from their
business activities. Customers pay the prices for the commodities based on
their value to them. Suppliers use dynamic pricing to use variable prices
rather than fixed prices. Dynamic pricing is a collection of pricing strategies
businesses use to enhance profits (Huang
et al., 2019). The logic behind dynamic pricing is to sell the same
commodity at different prices to different persons. This paper explores the
pricing strategies operating in the real market and how auctions are deployed
in pricing to find the value for products and services.
Compare
and contrast surge and congestion pricing.
Surge
is the mechanism of setting prices for products and services. The price charges
according to how many products and services are demanded at a particular time
relative to the supply of the same product and services (Lu et al., 2018). Businesses
charge high prices when demand for commodities increases and lowers prices when
demand is weak. On the hand, congestion pricing is a dynamic pricing strategy
deployed to regulate the demand for products and services by rising prices
without increasing the demand.
Several
similarities exist between surge and congestion pricing strategies. Both
pricing mechanisms are applied in the economy when the demand is higher than
the supply. They regulate the number of people consuming the available goods
and services without increasing the supply. High-income earners continue to use
the product and services even after price hikes, while low-income earners shy
off (Lu et al., 2018). Also, both approaches have a direct impact on consumers.
The added costs are born by final consumers since sellers transfer the
additional operating costs by increasing the prices for the product and
services purchased.
Despite the many similarities between surge and congestion pricing, there are also several differences. Surge pacing is applicable in all sectors of the economy where demand is higher than the supply. On the flip side, congestion pricing is an application in limited sectors, including transportation, hospitality, and utility. The surge pricing approach aims to increase the product and service providers' revenue and profits. It regulates demand by increasing prices to encourage more providers to venture into the market. For example, Uber Technologies used a surge pricing strategy to solve driver shortages. Pattnaik (2019) asserts that although uber is an app with unique features to make divers' work easy, the shortage of drivers remains a challenge in the industry. Drivers are unwilling to work during bad weather conditions and unseen emergencies. Hence the industry resolved to charge high prices during peak hours and bad weather conditions to encourage drivers to continue giving rides to customers. On the flip side, a congestion pricing strategy is imposed to regulate the wastage of resources and minimize the harm case by end-user in using the products and services. For example, New York City Charges congestion pricing for all motorists to minimize the pollution they make to the environment. According to Chung (2020), the city council plans to increase toll charges at the end of 2023...
