How to play with price points to earn more
Oct 16 2012, 12:32 | By SME Mentor
How can you earn more from the same product or service? Dynamic pricing could help you clock more zeroes on your balance sheet. This means offering the same product at different prices to different groups of customers or at different times.
It's not exactly a new concept but it's gaining ground as businesses discover more creative ways to reel more money into the kitty. Big businesses like hotels and airlines have been doing it for a long time while smaller outfits are discovering that one way to inflate profits is to play with price points.
Experts say the government's decision to slash subsidies and offer market-linked rates will encourage dynamic pricing in Indian businesses. With the decontrol of petrol prices, for example, the cost of goods and services across different geographies will vary. Harish Bijoor, Chief Executive Officer at Harish Bijoor Consultants, says, "Culturally, India has not witnessed a lot of dynamic pricing. But now, with the changes in petrol pricing, we will see more of it."
But you can't play tic-tac-toe while slapping a price tag onto your products and services. If you don't have a rationale behind the price you fix for each target group, you will end up with a lot of angry customers. Here are some ideas you can mull over while using dynamic pricing.
Location: Diverse locations offer an opportunity to price audiences differently. The cost of real estate, demand and the novelty factor can all be factored intro the price of your product. Frequent travellers will have noticed that foreign exchange providers always charge a higher rate to change money at airports vis-à-vis their offices in the city.
Goli Vada Pav too drafted its pricing strategy based on geographies. "We are in a space where either people don't know of vada paav or where there are barely any street vendors. In Mumbai, we have only three outlets, while we have 160 outlets outside Mumbai in places such as Pune, Aurangabad, Nagpur, Indore, Bhopal and Bangalore," explains Venkatesh Iyer, founder of Goli Vada Pav. Hence, the pricing of Rs 10-15-20 per piece in Maharashtra and Rs 20-25-30-35 outside. "Consumers in Bangalore were not familiar with vada paav. Hence the prices there are higher. Today, we have 35 outlets in Bangalore," adds Iyer.
Urgency: If people are in dire need of something, they are prepared to pay more for it. SMEs who provide services too can use this strategy for facilities provided on an urgent basis. Says Bharat Ahirwar, Founder, www.getmypeon.in and www.atyourservicemumbai.in, which offers a 'personal assistant' to run your daily errands and an online personal assistant, "If a task is to be completed on the same day, we charge Rs 200, whereas if the task is scheduled for the next day, we charge Rs 100, plus the travel expense. Also, when customers call in from distant locations, or if the task consumes more time than usual, we quote Rs 200. People are willing to pay Rs 200 because they understand that the task is difficult. They just want to get the job done."
Different Days: Online portals and large-format retail chains have toyed with 'Wednesday Sales' where they offer heavy discounts. Lounge bars have women's special nights, which quote different prices. Some businesses charge more on weekends. Take, for instance, Party Hard Drivers, which offers chauffeurs, especially for those who have had a drink and shouldn't be driving. "The regular rate for a 6-hour shift is Rs 650 but we charge more on weekends," reveals Ankur Vaid, Director, Party Hard Drivers.
Demand: This is a no-brainer - the higher the demand, the higher the price. Airlines use this very efficiently. During vacations when tourists pour in, rates shoot up by the minute. While quoting ticket prices, travel agents say, "Price valid only for purchase prior to 12 noon." 'Wedding season' is another time when customers groan because hotels, photographers and make-up assistants all jack up their prices during this time.
First-Mover Advantage: Offering an attractive price to early birds is another way to earn more. It forces the customer into an immediate or quicker purchase. You can also move your price point a tad higher for new subscribers or the 101st customer onwards. If you have an annual payment product, you can demand a higher fee from new customers and keep existing customers happy.
But what if the idea falls flat? If typical dynamic pricing does not work for you, there are other subtle and creative ways in which you can play around with your price points. Offering cash-backs or vouchers may work. The idea is to think out of the box and make differential pricing work for both you and your customers.
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