Priceff Chairman Tiina Laisi-Puheloinen appeared in the Finnish business newspaper Kauppalehti with a reader's column on how dynamic pricing can strengthen the pricing competitiveness of Finnish companies. The full piece was published in Finnish; here is a summary of the argument she made.
People working in marketing and sales know the classic four Ps of marketing: Product, Price, Place, Promotion. Of the four, pricing unfortunately still tends to get too little attention.
Traditionally, the pricing process works like this: calculate costs, analyze competitors' prices, add a margin, and make a price decision. Then the same price is kept in place, aside from the occasional campaign, and the company hopes the product or service sells.
At best — or worst — companies are satisfied if a product or service sells out in record time. But that may well mean it was sold too cheaply.
Dynamic pricing improves on this process by letting price move with demand. It can be made even more effective by handing (especially tactical) pricing decisions over to algorithms.
Around the world, algorithm-driven, demand-based dynamic pricing has been used for years in air travel, tourism, and transportation. More recently, algorithms have spread to other areas too — including the pricing of raw materials, perishable food, restaurant meals, and movie and concert tickets.
There is often a fear that dynamic pricing raises prices and drives customers away. In practice, however, dynamic pricing can just as often bring prices down — and as utilization rates rise or waste falls, profitability improves.
Letting price move with demand benefits both customers and companies. It improves productivity, reduces idle capacity and waste, and increases overall economic activity.
Information systems built on algorithms can optimize pricing processes toward whatever goals a company sets.
