As more companies across the globe become data driven and adopt analytics to improve decision making, marketers are focusing on "price" as a way to immediately improve top line revenues and profitability.


Dynamic pricing, or pricing based on supply and demand, seasonality, or other events is popular with online auctions and with many transportation companies such as airlines. However, as companies in all industries look to improve sales margins, many are realizing that a single minded focus on fixed pricing can hurt more than help.

An article in Information Age, "Liquid Commerce" May 12, 2007, details some interesting trends regarding dynamic pricing in the insurance, retail and financial services industries. According to the article, "variable pricing–has quietly taken root, aided by a combination of technologies including customer profiling and analytics, data warehousing, pricing optimization, revenue management and, recently, event processing systems."

Companies of all sizes are using analytics to sift through mountains of supplier, point-of-sale, and other data to determine the best price to maximize sales.

One company in particular, Norwich Union, has rolled out a "pay as you drive" car insurance program. In this program, Norwich Union uses GPS, and other technologies listed above to capture, aggregate, store, analyze, price and eventually bill customers based on factors such as times of use, distance traveled, and other variables. Prices can be as low as a penny per mile!

"Young drivers are charged according to each individual journey, and the risks those journeys pose, rather than being charged one annual premium based on a demographic profile," the article states. "For example, journeys made during the afternoon are cheaper than those made at night."

Doesn't this make sense, especially for young drivers who might not drive much, but generally get stuck with high premiums because of the overall risk profile of teenage drivers? The teenager that takes the car out once a week, all things being equal, should be less risky than the teenager using dad's car every night.
Pay as you drive isn't for everyone. The idea of a GPS installed in a car makes some privacy activists wary, and drivers who rack up high miles annually wouldn't benefit from this plan. However, for certain customer segments, cost savings of up to 30% are available over standard premiums.

Despite my provocative post title, fixed pricing isn't going away.

However, retailers, transportation providers, finance and insurance companies and even manufacturers are starting to realize the mountains of data they own are a virtual goldmine! The right technologies coupled with the right processes and people skills can help companies collect, analyze and act on data–to price correctly–ultimately making them much stronger in the global marketplace.

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What are your thoughts regarding "dynamic pricing"?
Do you get irritated that it's becoming more difficult to enjoy the certainty and simplicity of a fixed price?
Do you believe that dynamic pricing will eventually overtake fixed pricing as the norm?