Variable Pricing can be defined as the pricing strategy to optimize Profit by offering different prices for the same product or service vary based on point of sale, a region of sale, date of the sale, and other factors.
Variable pricing is a marketing strategy to sell products to consumers at different prices. The same good is sold at a varying price depending on the demand of the product at a certain time or certain region. Variable pricing technique is used by retailers quite often to generate a profit on the goods.
You must have noticed that a product that you see in a store can be bought at much cheaper prices online. Because of this reason, many people check the price of the product online before making a purchase decision in a physical store.
The price of the product is decided based on various factors such as service required to produce and maintain the products and the demand and supply of the product. For example, the demand for Air conditioners is quite high in summer.
As a result, an upsurge in the price of air conditioner can be observed in summers whereas same air conditioners are sold at heavy discounts offseason.
Even though sometimes consumers complaints about the varying prices of the products, but there are many companies which have taken advantage of this technique and generated profits. In the next section, you will learn about a few examples of companies which have successfully implemented the variable pricing technique and attracted customers.
Examples of variable pricing
#1 Variable pricing technique is heavily used by e-commerce companies:
Even they show the price of the same product on different websites’ advertising and different price of the same product to different customers.
Variable pricing technique is not only used by Amazon, but there are several other e-commerce websites which are using variable pricing in a different way to generate profit.
#2 Another example of the use of variable pricing by e-commerce companies is the example of eBay e-commerce business:
eBay sells products with limited supply using the auction method. In the auction technique, buyers compete with one another to get their hand on the product.
In this way, eBay maximizes its profits, and customers get the satisfaction of getting the product by competing for it, and they don’t feel bad for paying more to get the product.
This variable pricing technique creates a win-win situation for both the company and its customers.
#3 Variable pricing technique is heavily used in the airline and hotel industries:
It is commonly observed that the prices of air ticket vary depending on the season, date, and, demand. It is commonly observed that two travelers got the same ticket to the same destination at different prices.
The airlines change the prices of the tickets of the airplane when there is high demand, especially in the festive season when people travel to be with their family and loved ones.
Similarly, in the hotel industry, the different prices of hotel rooms can be seen for the same type of room on different hotel booking platforms and also the rooms near tourist attraction available at cheap prices during off season and the prices of the same rooms hiked up when there is high demand.
#4 Similar to the airline and hotel industry “Uber” is also known for using surge pricing model:
The price per kilometer rises when there is a rise in the demand for uber service. Companies use this technique to drive more profit during the demand period, and the low prices are offered to attract customers during the low demand period.
Model of Variable Pricing
#1 Variable Pricing Based on demand:
This model of variable pricing is designed based on the demand for the product. Some products and services are more in demand during a certain period.
During the demand period, the prices of the products raised and are lowered when they are not in demand to let new customers try that product.
For example, the price of hotel rooms at tourist places peak up during the rush season, and another example of this variable pricing model based on demand is the sale on off-season clothes. Usually, stores sell clothes of the winter season on heavy discounts during the summer season.
#2 Variable Pricing based on Location:
Now, this pricing model works on the basis of the location of the store. Stores which are located at the central or mainstream location of the town. Whereas the same store located at the less popular place might sell the same product at lower rates.
The reason behind adopting this model is to increase the foot traffic in those stores. For example, a store of the same brand might sell the same product at high prices than a store located in suburban areas.
#3 Variable Pricing Based on Groups:
This is a smart variable pricing model.
In this model, the consumers of a product or service are divided into different groups based on their location, type, and demographic information, etc. Then the same product is sold to these different groups at different prices on the basis of their categorization.
However, this model is not liked by most consumers, and there have been many lawsuits filed against this model of variable pricing.
Advantages of Variable Pricing
There are several advantages of variable pricing. Because of this reason, these variable pricing strategies are widely used by many companies. Let us learn about the advantages of variable pricing next.
#1 Variable pricing technique helps in increasing profit:
Increasing the price of a product when it is in demand to get you additional profit. If people need the product, they would be willing to pay any price.
For example, during the Christmas season Christmas trees are in great demand and people are ready to pay any price to get the best and most beautiful looking tree for their family.
At this time, you could sell trees to them at an increased price to enhance profit.
#2 Sales can be made during the offseason:
There are some products which can be used in a particular season and their sale decreases tremendously when the season ends. However, there is a category of consumers who keep an eye on the off-season sale to grab the things they desire at economical prices.
By lowering the prices of products during offseason bring you profit rather than extra expenditure on the inventory management for the whole year.
#3 Attract new consumers:
People have a tendency to try new products when these products are sold at discount prices. By putting certain products at discount prices will make new customers to try those products.
In this way, you will not only increase sale but will also increase the customer base for the product.
Disadvantages of variable pricing
#1 Not liked by a few customers:
Customers who understand the pricing patterns of products usually don’t like these techniques. They feel bad for paying more than others for the same product.
#2 Competition increases among companies selling the same product:
Variable pricing has the potential to cause unhealthy competition among the companies which are part of the same industry. When a company sees that the other company has started selling products at lower prices and they are making a profit from it, the company also reduces the prices to be in the competition.
This creates a war between the companies, and they end up making a huge loss by selling products at lower prices.
#3 It impacts the loyalty of customers:
Customers stay loyal to the company that they trust, and they know that the company is providing the best products at the best prices.
However, when companies start selling products at variable pricing, then customers buy the products of the companies which are selling the products at the lowest prices.
Customers become more concerned about the price of the product then the brand of the product.
#4 More lawsuit cases:
Customers feel bad that somebody else has got the same product at much cheaper prices. Sometimes customers ask for the refund from the companies when they learn about this, and some customers even file a legal lawsuit against the company.
#5 It might put a reverse effect on the sales:
Most consumers have a mindset that the quality of the products is better if they are paying more for it. They believe that the products which are sold at lower prices are of poor quality. Hence, you end up losing sales.