Manageability – Centralized or decentralized pricing organizations can control pricing across the airline network with the same pricing or different pricing principlesĬhallenges of Dynamic Pricing in Airlines.Controllability – With the help of a solution like AcceleRate, one can control the prices of every shipment at a lane/customer level.Flexibility – Airlines can quickly react to the market conditions.The solution has been implemented at various airlines across the world and the value proposition was determined to be around 4 – 6%. RTS’ AcceleRate solution is the first of its kind to develop for air cargo. For example, Amazon is one of the largest retailers to have adopted dynamic pricing and updates prices every 10 minutes (Amazon effect by Nikolai Savin). Simply put, dynamic pricing is a strategy in which product prices continuously adjust, sometimes in a matter of minutes, in response to real-time supply and demand. This is especially true in the tech space. Similarly, an actual or perceived lack of supply could make them more willing to pay a higher price than when there’s a surplus.Ĭonversely, a customer’s willingness to pay may fall due to the emergence of a new competitor with stronger brand recognition or the perception that your product or service is outdated. When a customer has an urgent need that your product or service can address, they may be willing to pay a higher price than when their need is less urgent. In the air cargo industry, speed and connectivity are the two most important differentiators in determining willingness to pay. For example, service, how it looks, packaging, and brand name might matter as well. Price isn’t the only feature that matters to customers. In addition to extrinsic and intrinsic differences, numerous factors can cause a customer’s willingness to pay to rise or fall. It’s important to note that your customers’ willingness to pay a certain price for your product or service isn’t static. This variance is often caused by differences in the customer dataset, typically classified as either extrinsic or intrinsic.Īs a real-life example, the willingness to pay for a last-minute business trip in North America is different from someone in Asia. Willingness to pay can vary significantly from customer to customer. While potential customers are likely willing to pay less than this threshold, it i ’ s important to understand that, in most cases, they won’t pay a higher price. It i ’ s typically represented by a single quote of a dollar figure or, in some cases, a price range. Willingness to pay is the maximum price a customer is willing to pay for a product or service. One without the other will be equivalent to a leg missing in a chair. In order for dynamic pricing to work, one has to marry the concepts of revenue management and pricing solutions. The key difference with dynamic pricing is that the concept of willingness to pay along with key pricing influencers is used to determine pricing at a given point in time. These bid prices are then used to evaluate each booking request offering upselling and cross-selling options (products and routes). It uses the solution’s origin-destination – based demand forecasting and then maps it to its own capacity forecasting which in turn is sent to the optimization engine to produce bid prices. Typically, revenue management solutions produce bid prices by mapping demand to capacity. The term bid prices are synonymously used in the same context. How does one differentiate between pricing and dynamic pricing or where does revenue management and pricing merge? Pricing is generally defined as the value of space at a given point in time in the air cargo industry. This is augmented by the fact that we live in a somewhat capacit y- y constrained environment due to the pandemic. Air cargo is moving forward at a frantic pace in this area. Is dynamic pricing in airlines the real deal? We think so. It was origin-destination – based revenue management in the 2010s, it was pricing in the 2015s, and its dynamic pricing now. To jog our reader’s memory lane, it was revenue management 20 years ago. Every few years, there is a new fad in our air cargo industry and by default, you can expand that to the whole of the airline industry as well.
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