What is a dynamic price?
dynamic prices, also known as time prices, are a form of price discrimination in which the company changes the price of the product or service depending on some sets of factors. It is common among industries - such as tourism and transport industry - whose business is significantly increasing or decreasing in predictable circumstances. Dynamic prices make it possible to maximize its profits because it is better able to assign prices to take into account the change in demand and willingness to pay. Different places experience larger volumes of tourists in different seasons. For example, a beach resort will experience much more demand when summer is in this place than it is in winter, or if it is warm in the beach resort all year round, the business can be picked up when it is cold in other places. However, the ski cottage will have more demand with winter. Using the dynamic price, the hotel will increase its prices during its top season and reduce them during the off -season.
Sometimes the extra -season price will be so low that it does not cover all the overhead costs of the hotel. However, the hotel can take this loss because dynamic prices ensure that its increased prices during the top season will generate enough income to compensate for off -season losses. Many businesses in the tourism industry use these practices and some of them earn almost all their annual revenues during the very narrow windows of the top tourism.
Transport industry also often uses dynamic prices. During peak hours, demand for transport increases extremely. As a result, transport providers can charge higher rates at this time, as the availability of transport is limited, so consumers are more willing to pay higher prices. The transport industry can also use the dynamic price to increase income when demand increases for other reasons. For exampleRate.
Dynamic price is most effective if the industry is able to accurately predict consistent changes in the product or service demand. Dynamic prices can be very difficult to implement if these changes are less predictable, or if it is easy for consumers to change their habits to use the product or service when the price is lower. For example, it is difficult for the retail store to successfully implement dynamic prices, as it would be easy for consumers to adjust their shopping habits to avoid higher costs.