Dynamic Pricing vs Personalized Pricing in the Airline Industry
You must have noticed how frequently the prices of the airlines keep on changing. Sometimes the change in the prices is quite predictable but there are also many times when it seems to happen without much of a reason. So, why does such a thing actually happen and what is the industry´s pricing strategy?
Personalized pricing vs dynamic pricing – what is the difference?
One of the major differences between dynamic and personalized pricing is that personalized pricing allows pricing based on a business context and the individual that is shopping. Dynamic pricing is not a new concept and it is determined by the general demand-supply theory of economics. This means when the demand is high and the supply is low, then the airlines can increase the pricing of the tickets. Today, almost all airlines use the concept of dynamic pricing, although based on a predefined, static set of fare levels. This should not be confused with the capability to dynamically adjusted prices in real-time at shopping, something that very few airlines are capable of. On the other hand, personalized pricing has evolved as a fresh concept that offers adjusted pricing based on individual customers. Thus, many airlines are coming up with the concept of personalized pricing as well.
Dynamic pricing
Dynamic pricing is the model that is determined by economic factors such as demand, inventory, and various other conditions of the market.
Features of Dynamic Pricing:
- Dynamic pricing depends upon the changes that happen in the market
- Dynamic pricing can lead to sudden fluctuations in the ticket prices of the airlines
- It typically is based on the old concept of predefined, static fare levels associated to a set of RBDs
- Modern, Dynamic Pricing allows for pricing adjustments at time of shopping, factoring in business contexts
Benefits of Dynamic Pricing:
- Ability to create base load by stimulating and capturing price sensitive demand
- The prices increase during the peak seasons which in turn increases the profit
- In tandem with real-time adjustments provides significant revenue uplift
- Real-time adjustments help eliminate step functions in price ladder
Personalized pricing
While dynamic pricing is common in airlines on the basis of predefined, static fare levels, associated to a particular RBD, real-time adjustments as well as personalized pricing are still exceptions but are slowly gaining popularity.
Features of Personalized Pricing:
- The pricing depends upon on value as viewed from the customer's perspective and not the airline's
- The value will differ from customer to customer and will even vary based on the context of the customer's travel
Benefits of Personalized Pricing:
- Personalized pricing focuses on pricing based on value to the customer
- It enables higher propensity to buy
- Customer satisfaction is increased by offering the right product at the right price
- It drives higher revenues to the airline
What airline pricing strategies do airlines use?
Personalized pricing for flights
You must have noticed personalized pricing in different industries such as food, apparel, etc. where the brands pamper you based on your preferences and your loyalty to the brands. Many airlines have come up with the same concept where some extra benefits are provided to loyal customers. Of course, the pricing of the flight ticket does fluctuate depending upon the seasons and demand. But today, with the use of Big Data Analytics, airline companies invest their resources in researching and knowing more about their customers. Understanding the different preferences and behavior of specific customers allow them to not only offer the right kind of product but also at the right price to the right customers at the right time. This no doubt happens to increase the profitability of the company.
Dynamic pricing for flights
While personalized pricing is slowly making its place in airline pricing, dynamic pricing without any real-time adjustments is still very prevalent. Airlines increase their flight tickets when there is a sudden increase in the demand for tickets, for example - during a festive season by closing lower RBDs. Similarly, they will drop fares by opening lower RDBs when demand decreases.
Airlines are gradually looking at technology that helps them to enhance dynamic pricing by making real-time adjustments, ultimately leading to full personalized pricing.
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