Real Time, Real Dollars

Real Time, Real Dollars

by Paul Hunt – President

A consultant at Pricing Solutions recently presented some learnings he took away from an IBM conference on the topic of analytics. An important topic was the emerging frontier of using real time data to make real time decisions. From a pricing perspective, how could this level of data analytics move companies forward in their ability to be good value based pricers?

In a number of industries, such as airlines and hotels, real time pricing is already applied. We are all familiar with how quickly and drastically airfares increase as the flight date gets closer or the number of available of seats decreases.

In other industries, implementing a price change is a much slower process. We consult clients on pricing processes, strategies and implementing a price change and it is not always easy to sell the change through the organization.

How could real time data help? For one thing the pricing decision becomes more automated. Imagine an environment where a product price changes based on demand at a time of day or day of week. For example, what if you paid a different price for a Blue Jays game if you bought your ticket in advance vs. showing up in the fifth inning? Or, what if the price of a ticket for a Leafs game changed throughout the season based on their standing? If the past few years are any indication, ticket prices would drop dramatically!

To implement real time pricing decisions in your business there are some key considerations:

  • How is “real time” defined in your business? This is determined in part by the complexity and length of your production cycle and sales cycle.
  • What data does your business need to make a real time decision?
  • How would this affect the sales process and communication of price to customers?
  • What is the cost of communicating a new price? For example, if a restaurant were to change prices on a real time basis, how significant would the costs of menu printing be?
  • How to maintain fairness? Coke tried this with beach side vending machines and Amazon tried this with their web pricing. Both were deemed to have broken the code for fairness with customers.

Real time does not mean the same thing for all industries but as the ease of data collection and the depth of available data increases so to should the application of data in smart pricing decisions.

Paul Hunt is the president of Pricing Solutions, an international pricing strategy consultancy dedicated to helping clients achieve World Class Pricing competency. Paul publishes a monthly pricing column in the FP Executive. He also writes for the Pricing Solutions Club.