💲 HL Pricing Strategies
- Dynamic pricing — prices change in real time based on demand, time, customer profile or supply. Used by airlines, Uber, hotels, e-commerce
- Competitive pricing — setting prices based on what competitors charge rather than costs. Used in highly competitive markets with similar products
- Contribution pricing — setting prices to cover variable costs and make a contribution to fixed costs. Price must be above variable cost per unit
Airline tickets use dynamic pricing: the same seat costs $200 in January but $800 in July. The algorithm adjusts based on demand, booking time, and remaining seats.
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Evaluating HL Pricing Strategies
Dynamic pricing
- Maximises revenue by charging more when demand is high
- Fills capacity during low-demand periods with lower prices
- BUT can damage customer trust if seen as unfair or exploitative
Competitive pricing
- Easy to implement — just match or undercut competitors
- Avoids price wars if everyone prices similarly
- BUT ignores costs — could sell at a loss if costs are higher than competitors
Contribution pricing
- Ensures each unit sold contributes to covering fixed costs
- Useful for special orders or pricing decisions in multi-product firms
- BUT does not guarantee a profit — only that variable costs are covered