Retailers scared of what's in the box.
But in the leisure and hospitality sector this form of pricing is now commonplace and can make the difference between success and failure. Consider that leisure camp operator Pontins – it went into administration last year while its rival Butlins has continued to enjoy booming trade.
Administrators Zolfo Cooper pondered this divergence in fortunes and found the answer was partly down to the fact Butlins years ago adopted an airline-style pricing system. This ensured many people booked early whereas at Pontins the bulk of its bookings were very last minute, which made for very erratic and uncertain cash flows. This ultimately played a large part in its demise.
Butlins initiated dynamic pricing in 2000 and in 2007 they cemented its role in the business when I placed an executive in the company to head up its pricing division who had previously been in charge of prices at British Airways on its key New York and Chicago routes. Meanwhile, Pontins sat idly by.
Pontins: Bluecoats and red ink.
The changes in income levels from adopting dynamic pricing can be enormous and is why more and more leisure businesses have chosen to adopt the system. And thanks to the airlines, customers are well used to such pricing mechanisms.
They know that if they plan in advance then they’ll get a good rate otherwise they’ll just have to go with the flow and the price they pay is largely in the lap of the gods.
Dynamic pricing has also worked very well with the ferry operators – in fact it has saved some of them from near-disaster. The likes of P&O had real problems when tax free shopping was axed, as it wiped out their entire profits, so they examined their pricing methods.
They chose to use pricing to ensure they filled their ferries (to at least cover their costs) and to then gain their profits from aligning this with a more coherent on-board retailing strategy. They cleverly created separate entrances from the boats’ holds for truck drivers, families, and business travellers, that were each lined with retailers relevant to the separate groupings.
Dynamic pricing kept P&O Ferries profits afloat.
On top of this they gave each group their own restaurant – with grubby cafes for the lorry drivers, easy-going eateries for families, and quieter restaurants and facilities for the business people. Turnover took a turn for the better – up 30% on previous levels – and travellers enjoyed a good deal from the ferry company’s use of dynamic pricing.
The same cannot be said for its use by the hotel industry for the Olympics, which has seen the average rate doubling in London for June 2012. I suppose there will be many millions who will come over and stomach the price but there will also be many (including some regular visitors to the capital) who feel slightly let down by this tactic.
There will no doubt be similar levels of disappointment among some people over the adoption by the grocery retailers of dynamic pricing for delivery charges. The idea of home deliveries is that it is convenient, but if the likes of Ocado are going to charge increased amounts for the most convenient delivery slots then I feel it takes some of the appeal away from the service.
This highlights how the decision to initiate dynamic pricing has to be well thought through for retailers and leisure operators. Just ask Sir Stelios Haji-Ioannou whose use of such a pricing mechanism for home delivered pizzas and cinema tickets was not quite as successful as for his pioneering easyJet business.
Nigel Sapsed is director of executive search specialist Sapsed Stevens