Digital Transformation Project – team 39
Pricing is an important element in the business strategy as it will affect a company’s ability to compete and win margins. There are different forms of pricing strategy, however we have focused on dynamic pricing, meaning that a company has the ability to set flexible prices depending on external factors in the market. There are different forms of dynamic pricing, for example time-based pricing. Time-based pricing will charge different prices during the day or other periods of time, for example seasons of the year. The idea behind this strategy is that consumers’ willingness to pay will differ depending on when they buy the product, and the company can increase their margins by taking advantage of this.
We took a closer look at the company De Kapper Pijnacker, a modern hairdresser located in Pijnacker. De Kapper Pijnacker is currently charging fixed prices for their services, with little flexibility. The hairdressing industry is a competitive environment with relatively small margins, therefore we argue the importance that the company should strive to stay innovative and look for possibilities to constantly improve in order to maintain a sustainable business model. The company is planning to introduce a new online booking system in January 2016, but currently they’re doing bookings the old-fashion way. We propose the implementation of an automatic dynamic pricing system, incorporated with De Kapper Pijnacker’s current business processes. At first, the demand of De Kapper Pijnacker will be forecasted with this new technology. Based on this forecast, the different time slots will be priced according to demand. This pricing will happen based on previous data from last weeks, months and even years.
So how does this new technology work? For example, if a lot of people start booking their appointments on the evening of a given date, the price for that time slot will increase if more customers wish to book an appointment in the same time slot. That is, the customer that books the same time slot weeks before another customer might pay less than the customer who is doing the booking at a later time. By using dynamic pricing, De Kapper Pijnacker can offer lower prices to customers with a lower willingness to pay, and they can make up for the lower prices on these customers by increasing the price they charge customers who have a higher willingness to pay. Currently, the hair salon might be losing several potential customers who have a lower willingness to pay than their fixed prices, but with the implementation of this technology, there are certain time slots that will become within their price range, and De Kapper Pijnacker can potentially increase their market share by offering services to a greater market segment. In addition to the broader range of customers, De Kapper Pijnacker will to a greater degree be able to maximise the return per customer. The salon will to less extent lose potential customers because of the price. In fact, because the customers will be able to choose their own preferred time slots and associated prices, this will lead to greater profit.