Operations

Getting Your Prices Right

Posted on October 7, 2013 by - Also by this author

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As a follow-up to my column last month on value vs. discount pricing, I’ll bring up the second part of the equation: Static vs. dynamic pricing. Value pricing goes hand-in-hand with dynamic pricing to form the new-school model for chauffeured service rates. Whereas value pricing reflects your rules and standards, dynamic pricing responds to the real-time free market.

Airline Lessons
To understand dynamic pricing, look no further than the passengers on your next flight. Do you want to know if you really got a good deal on your ticket? Then just ask everyone seated around you. It’s guaranteed you’ll get just about as many answers as there are seats. Better yet, see what prices people paid on another flight for the same route – two hours earlier, or five hours later, or the next day. This pricing model works well for airlines and consumers alike, with multiple ticket prices determined by many factors, such as time of booking, purchase venue, seat availability and location within the cabin, non-stop versus connections, competition, month, day of week, etc. The Internet empowers the provider to adjust prices while giving consumers more choices than ever before. Just last month, while waiting at a gate at the Philadelphia airport, I decided to pay $48 for an exit row seat on my pending flight, but not the $96 rate for an exit seat row on the connecting flight. That’s a real-time decision made possible by dynamic pricing.

Why Not?
Three quick questions come to mind related to the industry’s “third rail” issue:

  • Why doesn’t such dynamic pricing work for chauffeured transportation?
  • Why is the industry beholden to flat rates/set hourly rates instead of real-time flex pricing?
  • If road tolls can be adjusted 24/7 via FasTrak Metro Express Lanes here in Los Angeles, why wouldn’t this concept work for ground transportation?

The answers to these questions are obvious: Q1: It can. Q2: Slow to change. Q3: It will.

Technology Advances
The reason dynamic pricing can and will work in chauffeured transportation is due to the emerging technologies, such as mobile apps, the Internet cloud, GPS and sophisticated “anywhere” and “everywhere” versions of software. Meanwhile, Limos.com and Uber.com are the pioneering templates of responsive pricing. Many limousine companies already can handle all the electronic records required for tacking on a host of fees and options, just like the airlines. I recently learned of “holiday fees” and “optional greeter fees,” in addition to the standard gratuities, fuel surcharges, late fees and administrative fees. Many operators also use zones and tiers to set rates based on distance and type of vehicles. It’s only a small step for operators to set hourly and flat rates in real time based on supply and demand via interactive technology. I asked several knowledgeable industry sources what it would take to pull this off.

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