We know, flight prices do not have a fixed cost, but vary over time, even hours later. This happens because companies use the dynamic pricing – literally dynamic price -, a sales strategy that uses algorithms to increase profits as much as possible and which allows you to change the price of a product based on numerous variables. The price change depends for example on when we buy the ticket and also for when we buy it. If I want to go to Madrid on October 10th I spend 20 euros, around Christmas I spend 200. This is because during the holidays demand rises and the price also rises.
And it doesn’t just happen with i flightsbut also with hotelor renting one machine. Just think that dynamic pricing is also used in supermarkets and in online stores and it can also depend on the preferences of each individual user.
What is dynamic pricing
Dynamic pricing is one marketing strategy to sell products and services with flexible prices based on market trends and its variables. The main factor to keep in mind is that companies try to maximize their profitsthat is, earn more, but also waste as little as possible and encourage purchasing at times when no one is buying. But raising prices randomly is inappropriate, it wouldn’t entice the majority of customers to buy. So prices are modified with a precise strategy, that is, following demand: when it is higher – that is, more people want to buy that flight – the price will be higher. While if a flight is semi-empty the prices drop so as to push people to choose that flight. If many people actually decide to buy it, and the flight fills up, the price goes up again.
Often some are established different price ranges for the same class, so for example the first 100 to buy the ticket will pay less, the second 100 a little more, and the last 100 a lot. In short, the fewer places there are, the more they will cost.
For this reason, the price changes over time. Flights are planned 11/12 months in advance and gradually follow the demand of buyers according to what we have said. And this dynamic creates a continuous price fluctuation, with low peaks – where it is convenient to buy – and high peaks – where buying costs a lot.
Then when you get closer to the departure date, one or two months before – always depending on how much a flight is in demand – the price starts to rise. This is also done for satisfy different needs: those who want to spend little know that they can do so by moving in advance and buying at the right times. Those who need to buy flights at the last minute, that is, those who travel for work, are not attentive to the price, because the company probably pays, and the fact that the price is very high close to departure means that some seats are always available for this type of passenger.
What affects dynamic pricing
Even the time of day when we shop can be important: morning or evening, at the weekend or during the week. But there are many different opinions on this and there is no real answerbecause our dynamics and preferences change, and so do demand and therefore prices. For example, if we discovered that Tuesday was the cheapest day to buy flights, we would all buy on Tuesday, but at that point it would become the day with the highest demand and therefore prices would rise, and it would no longer be the most convenient day. convenient.
But there are also other factors that influence the price: for example, the cost of raw materials – “petrol” – or geopolitical situations particulars, but also and above all the market: if another company opens the same route, the cards in play change and thanks to a change in price, one can improve one’s competitiveness.
So companies try to level out demand, controlling it to keep it constant over time. This dynamic allows prices to rise a lot, but also to fall a lot, thus allowing more people to travel at different times, in this case.
Dynamic pricing. However, it does not only apply to flights, but also to hotels or car rentals. And the price dynamics are more or less the same as we have described.
Different user, different price: how it works
In recent years, dynamic pricing has changed, evolved and broadened its field of action. It no longer concerns just planes or hotels, but also concerts, transport services such as Uber, online shops, shopping apps.
While once prices varied in general, for everyone, and did so in stages, by price ranges, now we are in the era of digital, data and preferences. And this allowed two things: the first is the so-called ccontinuous pricingthat is, the continuous modification of prices, even slightly, thanks to algorithms that instantly evaluate demand, how the market is moving and how to optimize prices accordingly.
The second novelty is the evaluation of individual preferences, it is said dynamic building. These algorithms adjust prices depending on who they have in front of them, depending on their searches. So it doesn’t just evaluate demand in general, but the specific demand of those who are purchasing.
For flights, for example, if I have often searched for the same flight, its price could increase for me, and not for everyone – and this happens, for example, thanks to cookies which store our information on specific sites. Or on the contrary, for example, if I always buy sweatshirts on a certain app and it’s been a long time since I bought anything, the app could offer me one personalized discount to encourage me to buy something I like.
This also happens in many physical stores, especially in the United States. The presence of digital price tags has allowed the application of continuous pricing also in supermarkets, so as to level the demand for the most requested products and at the same time reduce the price of the least sold ones, with the declared intention of encouraging their sale so as not to cause waste, given that foods expire. And in stores, prices also change depending on the place: if I’m buying the exact same product in a smaller or larger store in the same chain, the prices can be different.
How is dynamic pricing regulated?
Dynamic pricing tries to best match supply and demand, lowering and raising prices to increase companies’ profits but also cover different needs. But if on the one hand this allows you to purchase at low prices in some periods and in general allows the average price of goods to fall, on the other it can cause abuse on the part of the market, i.e. prices which – when they rise – are really too high .
An example was the striking case of the Oasis concert a few months ago: the intention of using dynamic pricing for tickets was to reduce scalping, i.e. the illicit sale of second-hand goods at high prices, but the result was that the tickets arrived almost immediately at stellar prices given the very high demand from fans.
This phenomenon highlighted the need for regulate dynamic pricing at an institutional levelto prevent it from harming consumers to the benefit of companies. There were, like Australiawho said they even wanted to ban it. And as far as we are concerned‘European Union is moving in this direction.
