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Dynamic Pricing : Is it really worthy

In today's world, its very common for airline, hotel and other industries to dynamically vary their pricing on the basis of several factors. For example, a hotel might charge couple of hundred rupees more if the booking is for a weekend. Similarly, the private airlines very easily fluctuate their prices on the basis of dynamic demands or on the basis of vacation seasons. The variability can be as high as 100% for some cases. Also coupled with online booking sites, the whole idea is to create a consumer surplus that would ensure maximum profits for the industry. Consumer surplus is defined as the difference between what the consumer is willing to pay against what the consumer actually pays. However, the prime question is whether dynamic pricing is really beneficial for the industry or not.
Price is something that has a huge impact on the customer's perception about the product. The trust of a consumer might get highly affected if he sees a constant fluctuation in the price of the product. This could even affect the brand value of the product.  For eg: a stable price of a product commanding a high brand value sends positive signals to the consumer in terms of stable sales for the product. On the contrary, a product commanding a lesser brand value with fluctuating prices might send negative signals to consumer. One more disadvantage of dynamic pricing is that the decisions have to be taken so fast that the data to drive the decision may not always be accurate.  For example, in case of the mobile handset industry its very common to increase the price of a new version of a product if the previous version has recorded high sales. However, this can allow the competitor to come out with a similar product with same features at lesser cost which might eventually cause lower sales for the new version of the product. Its also very common in some countries that the prices of products go drastically down or upon some specific days (eg: black Friday). This could discourage the consumers to buy these products in previous seasons in the expectation of a price cut.
Its very important for organizations to understand to have a long term vision and not be short sighted. They have to understand that in order to expect customer loyalty towards their products, its imperative to concentrate more on quality, brand value, after sales service, customer support and not just pricing.

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