Background. Over the past few years, we have invested time and resources in trying to spread a culture of pricing and dynamic pricing. Many entrepreneurs have listened to members of our team share tips, theory and practical examples at various conferences, on the pages of our blog or in the book “Dynamic Pricing. Logics and tools for a variable price structure“. Often we found ourselves in contexts where pricing and price variation were considered marginal topics concerning their business.
Skipass Dynamic Pricing, the entrepreneurs’ approach
Pre-pandemic we had the opportunity to spend some time together with several entrepreneurs and ski consortia, to explain to them what dynamic pricing was and why the ski lift market, in our opinion and according to the main theories of yield management, would be suitable for an application of this pricing strategy. Just to mention one occasion, invited as experts by the Trentino School of Management, we gave half a day’s training (free of charge, ça va sans dire) to managers in the sector. However, before us there was another Italian start-up that developed its vertical solution on skipasses, offering a dynamic pricing software solution. We were neither the first nor the only ones. Obviously, for a company like ours, these evangelization activities are sacrosanct, and every opportunity for discussion has been useful in really getting to grips with the logic of the business. From 2016 onwards, however, we have often experienced a refractory attitude towards new technologies, and the complaints we have heard have often been the same:
- If others don’t do it, why do I have to?
- We’ve already implemented online sales and they work very little (online ski passes cost more because, you know, there’s the advance sale).
- The software house that follows us has said that it’s not necessary. (The same one that designed the e-commerce that “works very little” with 17 steps to follow to finalize the purchase).
Then Covid came along and everyone, really everyone, decided it was time to adapt to online sales. Even ski lift operators dusted off a few slides on dynamic pricing and thought that, when it came to pricing, it didn’t make sense to rely on those who do it for a living. It’s better to make do or get help from the software house of the day because, after all, what does it take to set 4 price steps?
Skipass Dynamic Pricing, tips for successful application
Pricing is a science, a strategic lever, but only if used correctly, and dynamic pricing is even more so. Once again, to avoid that the definition of the price of a product or service seems a simple activity and the prerogative of anyone and that dynamic pricing is discredited, here are some of the considerations and warnings shared in the past:
- If you choose to raise prices on average by 20/30%, it is incorrect to promote this initiative as the “introduction of dynamic pricing” to avoid talking about a list update. In doing so, and as has already happened, dynamic pricing will be identified as a ploy to “cheat” the consumer. It is certainly more honest and transparent to state that, after two years of the pandemic, this sector too should have had a price increase because the state was unable to support it properly. The consumer would have understood this.
- Net of the increase, it is important to communicate what the maximum prices are for each type of ticket and to reward, but reward the advance in online purchase, giving the possibility to buy an ancillary product to change the date, in case of bad weather or unforeseen circumstances. If skiing today costs €59 and buying now for next week guarantees me a 3% discount, what sensible consumer should be open to this kind of saving?
- To be able to make the right choices in terms of pricing, it is essential to analyse historical sales data (yes, even after two anomalous years like these, it makes sense to study the dynamics and factors capable of influencing demand, adding the weight of “new” variables, such as the trend of contagions). Relying on those who know how to calculate the price elasticity of demand for each product at any given time, and having the pricing set by those who at least know the basics of pricing, is the only way forward if you aim to build customer loyalty and increase revenues in the medium term. Because an entertainment ticket rounded up to the nearest 2 cents is not only ugly to look at, it is conceptually incorrect.
- It has no sense for dynamic pricing to coexist with dozens of different ticket types and countless discounts and promotions. And there should be no distortions between the till and the web. With the introduction of dynamic pricing, fares should be rationalized and the market segmented intelligently.
However, the positive aspect of this situation is that it is an attempt because even if in most examples an unprofessional solution was opted for, the right path is beginning to be taken. After this ‘test’ season, the time has come to take the project to the next level by putting it in more experienced hands. Because, like those who start skiing with enthusiasm by skipping a bit of healthy ski school, the risk of pricing in this way is that of looking like a beginner throwing himself down a black slope in a snowplough. The real problem is to get to the bottom of the valley without having compromised the health of your company, or even that of your consumers.