Money

Why Your Pricing Models Must Flex With Real-Time Markets

Posted on August 12, 2016 by - Also by this author

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If you have ever tried to book a room in Las Vegas for New Year’s Eve, you probably have experienced “demand pricing.” The more demand for rooms, the higher the rate. The same concept holds true for airlines selling tickets for a three-day weekend. Our industry seems hopelessly stuck with fixed hourly rates.

Our Pricing Models
Since the advent of the limousine industry, rates have been mostly set as an hourly charge. That rate doesn’t generally change at any point during any given business day. The charter bus industry has always operated on either a mileage rate or hourly rate, and those prices don’t vary either. There are also “flat-rates,” known as “transfer rates.”

For years, we have used this method to provide quotes and a final billing to our clients based on the rate applied. It worked for the industry and our clients. The evolution of the TNC market and improved technology has forced us to stop and evaluate these old pricing models.

Other Pricing Models
Our industry works hand-in-hand with the hotel and airline industries. Let’s examine the hotel industry first. When a hotel inventory shrinks fast, it is usually because of a regional demand.

For instance, the J.W. Marriott at Staple’s Center in Los Angeles has a room rate of $273 on most nights. However, on the night Adele is singing, the lowest room rate is $455. People seeing Adele will pay it. Compared to airline industry pricing, flights between LAX and JFK were at $441 going into the Fourth of July weekend. Any other day, the same flight is $206. That’s more than double the regular fare.

Why Don’t We Do It?
Operator John Raftery, owner of Executive Limousine & Coach in Ventura, Calif., summed it up: “For some reason, consumers are okay with airlines and hotels doing it, but when we do it, there is an outrage. Instead of paying our price, they start calling around and will go with a guy that’s $5 less per hour.” This view echoes among many operators. They fear potential customers will use technology to find a cheaper alternative. Raftery recently raised his bus rates and knows he is a few dollars higher than his competitor but will hold the rate he set.

Tech Influences
Long ago Priceline.com shook up the hotel industry by guaranteeing to find the lowest price hotel. It introduced the bidding system and forced hotels to share their lowest rates just to be considered. TripAdvisor.com upped the ante with its new web-based technology that changes how customers search for hotel and airline rates.

Uber did the same thing with rides and rates. It found a way to simplify getting a ride in minutes, but built demand pricing into its structure. If 40 people are seeking a ride at the end of a concert, the rate rises based on surge demand. If you ordered an Uber from the same location when the arena was closed, the price would be much lower.

Commonwealth Worldwide affiliate manager Tami Saccoccio asks affiliates at the start of each year to list any known special events in their respective cities so special pricing for the event days can be negotiated in advance.
Commonwealth Worldwide affiliate manager Tami Saccoccio asks affiliates at the start of each year to list any known special events in their respective cities so special pricing for the event days can be negotiated in advance.
The Affiliate Twist
Add to the mix the affiliate relationships in our industry and it creates a new twist. In the traditional bond between a network such as Commonwealth Worldwide of Boston and its affiliates around the world, affiliates provide an hourly rate they agree to charge for Commonwealth trips. The rate is static because no mechanism so far can accommodate on-demand surge pricing in a given city.

Commonwealth affiliate manager Tami Saccoccio asks affiliates at the start of each year about special events in affiliate-served cities to negotiate in advance special pricing for event days. However, that doesn’t usually cover local concerts at local venues announced throughout the year. If Saccoccio farms an order to an operator in Bakersfield, Calif., for example, on the night of a Garth Brooks concert, her client may or may not be attending the concert and a simple airport transfer with a healthy increase might not sit well with Saccoccio or her client.

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