Money

Why Your Pricing Models Must Flex With Real-Time Markets

Jim Luff
Posted on August 12, 2016

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.

What Do We Want to Be?
One thing operators must face is whether to be pre-arranged, on-demand, or both. Limousine services have been mandated to operate on a pre-arranged basis according to the terms of their license. In California, livery permits are issued with specific provisions to avoid unfair competition with taxi companies.

When those laws came about, TNCs had not yet emerged. The Public Utilities Commission’s concern for protecting taxi companies has long since vanished. If a limousine service has a contract with a hotel to transport hotel guests, the relationship is considered pre-arranged and the operator likely has a chauffeur and vehicle on stand-by at any given time.

Absent such an arrangement, we must decide if we want chauffeurs to take vehicles home or stage in a location waiting for an on-demand order. If an on-demand order is accepted, should there be a premium price to pay? If we don’t want to bear the expense of this operation, then the alternative is to handle pre-arranged but change the pricing model to reflect the demand on the fleet for a particular day and learn to fluctuate like hotels and airlines.

G-Net by GRiDD Technologies founder Amir Zafar offers a platform that connects dispatch systems, allowing for transparent, real-time pricing arrangements and adjustments among affiliates.
G-Net by GRiDD Technologies founder Amir Zafar offers a platform that connects dispatch systems, allowing for transparent, real-time pricing arrangements and adjustments among affiliates.
Where To Now?
As an industry, we must embrace change and unite in upgrading the way we do business. Companies such as Rental Limo provide a list of operators in a given city shown in order of lowest to highest price, for example. Again, these numbers are static and don’t change with demand, but fill the consumer desire to get the best price.

One platform on the horizon is G-Net by GRiDD Technologies. The G-Net system integrates with many popular software packages such as FASTTRAK, and is poised to handle on-demand pricing where affiliates on both ends of a transaction can change rates and update the system immediately, says Amir Zafar, G-Net founder and CEO. G-Net allows users across different platforms such as Limo Anywhere and FASTTRAK to communicate with each other and view available vehicles in real-time.

Zafar is working with many reservations software companies already on the market to address the on-demand issue from the pricing and dispatch aspects.

Maintaining Price Integrity
Keeping your set rates might be hard to do in a more competitive ground transportation market, but we can’t lose sight of being luxury transportation providers. Our rates must reflect a difference between TNC companies and the services we offer.

Here are some attributes that justify our higher pricing models, worth promoting and selling:

  • Premium luxury vehicles such as Mercedes-Benz, Lincoln and Cadillac with interior comfort amenties
  • Chauffeurs are drug/alcohol tested
  • Chauffeurs are subject to thorough background checks
  • Chauffeurs are trained and uniformed
  • Vehicles are closely cleaned and maintained
  • Dispatchers help route decisions based on real-time data
  • Vehicles are legally permitted for curbside airport service
  • Vehicles are properly insured for commercial operations

Related Topics: Commonwealth Worldwide Chauffeured Transportation, finance, How To, John Raftery, Limo Rates, profits, rates, revenues, service pricing, Tami Saccoccio

Jim Luff Contributing Editor
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