Monday 23 September, 2013

Flexible Pricing – Is It Good for Ecommerce?

In economics, flexible pricing is a term that basically means adjusting your prices. It’s the alternative to offering just one price across the board. You may choose to change your pricing based on economic conditions, supply and demand, geographic location, time of delivery or customization options.

Just to get rid of any confusion, flexible pricing also refers to a price that’s open for bargaining. But for the sake of this article, we’re not talking about that. We’re talking about a pricing scheme that allows your business to adjust its prices depending on the above factors.

Everyday Examples of Flexible Pricing

Flexible pricing is common. A movie theater offers different prices at different times of day. The matinee price is cheaper because fewer people come during the afternoon. Most people see movies at night. A movie theater wants to influence customer behavior and pack its matinee shows, so they offer a lower price.

When a fast food restaurant wants you to come and eat there, they offer a limited time dollar sandwich. Even though they reduce the price, they’re actually selling much more of the dollar sandwiches than they would at the regular price. There are many people who don’t even eat fast food unless it’s that cheap.

One more example is ladies’ night at your local bar. It’s some night of the week when hardly anybody comes, and very few of those that do are women. The bar wants to see more female customers, so they offer a deal on drinks for the ladies.

The Advantages of Flexible Pricing

The biggest advantage of flexible pricing is that it allows flexibility for you the seller. You can reduce the price when you want to move more units. If stock tightens up or demand increases, you can raise your prices to maximize profits.

As you can see by the examples above, flexible pricing allows you to influence customer behavior. If you want them to buy the old version before the new version comes out, you can offer the low version at a lower price. If you want to fill your restaurant during the off-times, you can offer an all you can eat special. Like dogs salivating at the sound of a bell, we’re all suckers for a good deal and we don’t mind being manipulated one bit.

The Disadvantages

Flexible pricing seems like the obvious way to go because of the above benefits, but there’s one huge advantage to a one-price strategy – it’s easy. There’s zero administration involved. You set your price and that’s it. It can be expensive and time consuming to constantly change prices.

A one-price strategy may also make your sales process smoother for customers. They can buy online instantly with one click because there’s just one pricing option. With flexible pricing, there are usually more communications involved (although there are ecommerce software programs and services that offer flexible pricing).

One last advantage is that a one-price strategy spreads goodwill among your customers who know they’re all getting the same price. Even though flexible pricing is so common, your customers may not see it that way.

The Answer Is Usually Yes

Is flexible pricing good for ecommerce? The answer is usually yes. Of course, it depends on what and how you’re selling. But in ecommerce we need to constantly respond in real-time to current trends and the moves of our competitors. Flexible pricing is handy for that because it allows you to make quick changes.

Bob Steele

Bob Steele is an entrepreneur, software developer, marketer, and author living in the Denver metropolitan area. He’s an avid outdoorsman who loves skiing, hiking, fishing, boating, and just plain having fun. His interests include games, space, technology, physics, cooking (well eating actually), economics, business, internationalism, and team sports. With over thirty years of professional consulting experience, Bob has been exposed to many diverse business models and has gained a sensible approach to life. Bob’s company, WaveCentric is focused on commerce, marketing, and entertainment related products.

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