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Dynamic Pricing for dummies!

Dynamic/variable pricing has been used all over the world by different organizations to generate maximum revenue. Airlines being the most popular applicant of such pricing mechanism- have been using it for decades. Now in the 21st century, dynamic pricing for a product or service has become a common trend and is used in several industries such as travel, retail, public transport, entertainment, electricity, and even hospitality. So to explain to you the concept, let us take you back in time.

This is the story from the rule of a mighty king, back from the 18th century. There in his reign lived a poor vegetable seller Ravi, who used to get vegetables from another kingdom at lower prices and sell them in his kingdom.

Ravi used to set up his shop at 7 in the morning and an initial price of 10 coins for vegetables equivalent to a stone which he used to carry as a benchmark.

One day, early in the morning, Mohan, a courtier was asked by his wife to get some vegetables from Ravi. He went to Ravi and bought vegetables worth 2 stone weight and gave the seller 20 coins.

Later that day, some guests arrived at Mohan's place so again he went to buy vegetables. But this time Ravi had the last 2 stone worth of vegetables which he sold for 40 coins to some other customer who happily paid the same. Seeing this Mohan got annoyed and reported the matter to the king, and ordered Ravi to be present in the court the next day.

Frightened, the seller was, entered the court. His feet were trembling and with a pale face, bowed down before the king. The king accepted Ravi's gratitude and ordered Mohan to present the case. The courtier did so and on hearing about the variable pricing, the king and courtiers were angry and asked the seller for an explanation.

Ravi said, "My lord, I get my vegetables daily from another town. Early in the morning, I set the base price to 10 coins/1 stone weight. I commit to stay in the market for the whole day to sustain my business and create my commerciality. Every time I sell some vegetables, I increase the price by some amount, so that by evening I have some vegetables left to sell. On some days when I sell fewer vegetables, I decrease the price as I have to sell all as by the next day they will get spoilt. This is how I keep a check on my vegetable quantity and someday end up earning more or less.”

This practice of varying the price with changing market conditions is called Dynamic Pricing. One core advantage of such pricing is its ability to maximize profits with each customer. Crossotel RMS presents the same concept for all the hotels around the globe where we use artificial intelligence which allows factors like inventory, occupancy, historical trends, and other data points to make an informed impact on your current room tariffs. Crossotel RMS takes into consideration every minute change in your hotel metrics to adjust the prices in real-time.

Hoteliers can now smartly automate their prices and expect anything between 25%-200% in room revenue.

And about the vegetable seller, well he was applauded by the king for his excellent pricing strategy and was given a not guilty order for the case!

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