Tuesday, September 25, 2012

Freshness and pricing

Various things are bought and sold for a price. My employer sells automated fingerprint identification systems, and government agencies buy them at particular prices. United Airlines sells seats (and food, and baggage transportation, and other things), and passengers buy them at particular prices. Apple sells phones, and people buy them at particular prices.

One pricing strategy does not fit all.

Think of the concept of a "reverse auction" in which, rather than prices going upward until someone can buy something, prices go downward until someone can sell something. Reverse auctions work better in some instances than in other instances.

Peter Evans-Greenwood:

An airline seat or hotel room has zero value if is not occupied, so there's an urgency on behalf of both the retailer and customer to cut a deal. The customer wants to occupy the room (or seat) on a specific date (or, at least, within a narrow date range). The merchant wants to sell the room (or seat) as a potential profit will be quickly transformed into a cost if it's not filled.

Retail today is a little different though....

The problem with any differentiated pricing strategy (such as dynamic pricing) where there is no compelling reason to buy is that you've just provided the smart customers with an opportunity to sit back and cherry pick the products they want at the lowest prices.

The ramifications? Not good.

I'm sure that management consultants have 3 or 5 or 7 or 99 different variables that enter into a pricing strategy, but "freshness" of the product clearly has to be one of them. Vegetables and desktop computers have different shelf lives.
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