Airline Personalized Dynamic Pricing: What is it and why is it important?

Written by Natasha

Airline Personalized Dynamic Pricing is all the rave now and a fast-approaching must-have for airline e-commerce. We take a deep dive into the concept of personal pricing and its application in the airline industry.

What is Personalized Dynamic Pricing?

One size does not fit all – there are different customer segments using airlines, and not all of them are willing to or capable of paying the same price for a flight.

Personalized Dynamic Pricing, also known as Personalized Pricing or intelligent pricing, acknowledges this crucial point and enables airlines to take advantage of it with taking pricing to the next level by matching the right customer with the right price at the right time.

Personalized Dynamic Pricing is the future of pricing specifically in the travel and tourism industry. Making pricing offers by catering to individual customer price elasticity is the turning point and the next step of optimizing revenue and growing sales.

At its core, dynamic pricing is the practice of changing pricing based on a varying number of variables. It is a pricing strategy in which businesses set flexible prices for products or services based on market demand factors.

Dynamic pricing is not a new concept, especially in e-commerce. Throughout history, Dynamic pricing has been common practice in several industries such as hospitality, tourism, entertainment, retail, electricity, and public transport.

Personalized Dynamic Pricing adds an extra dimension to this age-old pricing strategy by incorporating the very important aspect of consumer buying behaviour into the equation.

Today, there are a number of noteworthy businesses that utilize Personalized Dynamic Pricing and most certainly you would have come across it even if you were unaware that personalized dynamic pricing was at play. It is widely used in e-commerce by giants like Amazon, Expedia, Adidas and many third-party platforms selling air tickets and travel accommodation.

The fundamental goal of personalized dynamic pricing is to maximize revenue and balance capacity utilization effectively. It comes down to how much a business can squeeze out of the customer to make the most profit while still maintaining brand value and image.

Personalized Dynamic Pricing in the Airline Industry

Currently, most of the airline industry operates on a dynamic pricing model. When high demand coincides with short supply, then airlines charge more for the product. This model is rigid and soon becoming outdated and inefficient for a rapidly developing business and competitive e-commerce environment.

Airlines can optimize total revenue by taking dynamic pricing a step further. Dynamic pricing needs to be fast-acting and look at more than just the traditional factors.

Using Big Data Analytics-powered Personalized Dynamic Pricing, airline e-commerce can have access to many more important customer variables for constructing the perfect pricing in real-time.

Big data Analytics-powered airline Personalized Dynamic Pricing uses real-time customer data to determine and make the best suited air-ticket pricing suggestions that maximize revenue and sales at digital speed.

Big data Analytics will capture the billions of pieces of transactional data every hour of every day on airline e-commerce platforms. Analytical algorithms will then process the data and turn it into airline personalized dynamic pricing decisions based around the objectives set by airlines – eg: revenue maximization. The system will then offer different prices to customers depending on what it knows about current market trends, each passenger’s preference and price elasticity.

Airlines can use what it knows about customers to promote either a higher-priced or lower-priced package to them. If it is determined that a customer is likely to have a higher price elasticity, the airline can promote a higher-priced fare and hide its cheaper fares or position them at the bottom of a list and vice versa.

This would work for increasing sales by introducing a new customer or hesitant buyer with an especially affordable ticket or increase revenue by offering a higher ticket price to someone who is likely to be undeterred by an up-charge.

You are still in control – Airlines will not lose control over their pricing

Human decision-making and revenue-management processes will still apply to Airline Personalized Dynamic Pricing systems.

An airline Personalized Dynamic Pricing doesn’t have to be extreme and airlines will still retain control over the pricing.

Airlines can and will have to set a price floor and a segment price range that reflects the brand value and allows them the flexibility to stay profitable. The system will then work within this price range.

All pricing recommendations determined by the system for each customer segment will also require pre-approval before being incorporated into the ongoing pricing cycle.

Airline Personalized Dynamic Pricing vs Classical Revenue Management

As mentioned above, airline classical revenue management follows the Dynamic Pricing model. It is easy to get both models confused with one another as they are both sophisticated systems that use data to determine pricing. However, there is a clear and distinctive difference between the two pricing models.

Classical airline revenue management dynamic pricing is when prices change based on variables that are not related to the customer; competitor pricing, booking time, supply and demand. Dynamic Pricing does not care who your customer is and displays the same price across the platform to every customer.

Personalized Dynamic Pricing does not discredit dynamic pricing rather adds an extra dimension to it by incorporating individual customer identity when determining and displaying pricing.

How does a Airline Personalized Dynamic Pricing software work?

A Personalized Dynamic Pricing system operates in three distinctive steps; Collect, Analyze, React.

• Collect – The system tracks every single visitor that visits the e-commerce site and/or app via implicit input methods; who they are in terms of their demography, every minute they spend on the platform with their every interaction.

• Analyze – The system analyzes the collected data to identify customers’ price elasticity, their interests and their buying habits. It will provide multi-dimensional feature analytics and pricing recommendations based on this data for approval.

• Target – The system will automatically target the identified individuals with the tailored pre-approved price ranges via real-time reactive pricing via the e-commerce site and/or app, emails and push notifications.

Advantages: Why do airlines need an airline Personalized Dynamic Pricing System?

With technology advancing and airline e-commerce becoming increasingly competitive, soon Personalized Dynamic Pricing will be the new norm. Early adaption of the system will allow airlines the added benefit of competitive advantage and more experience along with the following advantages.

• Reduce revenue leak – When the right customer is matched with the right price point, revenue is not leaked through undercharging a customer with high price elasticity.

• Increased Profit – By positioning pricing to maximize individual customer price elasticity; airlines earn more and steadily increase their profit.

• Increased Sales – Personalized Dynamic Pricing increases sales by increasing the number of people who can access the product or service. Prospect customers who once thought they couldn’t afford might buy when prices match their price elasticity.

• Accuracy – A personalized dynamic pricing model and software takes out the assumptions and guesswork in pricing decisions and increases the quality of price decision-making. It provides and accounts of all variables needed through advanced machine learning to produce the most accurate airline personalized dynamic pricing decisions. This in turn protects your hard-earned volumes and margins.

• Easily manageable – Manually operating such a pricing strategy is virtually impossible. With an airline personalized Dynamic Pricing software, airlines can easily manage the effective pricing of hundreds of thousands of products at a time and alter their prices accordingly in real-time.

By not utilizing the readily available resource of rich customer behaviour data you hold into your pricing strategy, you are potentially letting slip an advanced high tech tool that could be saving and earning you millions more.

Challenges – Adapting Personalized Pricing strategy

The biggest challenge in adopting airline Personalized Dynamic Pricing is finding the right software and partner.

There are a number of professional and well-designed off-the-shelf personalized dynamic pricing systems readily available for purchase.

In general, the pricing software that is tailor-made for the airline industry use case in specific will be the most suited. The system must also be backed by a Big Data Analytics system allowing mass data processing and tracking.

Also very important; You need a software partner who will listen to you and work side by side with you as partners, not just sell you a product and then be hardly reachable. This teamwork dynamic helps airlines adapt better and function better.

With a bit of patience and the right software partner, Personalized Pricing will be easily implemented and heavily beneficial for the airline industry.

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