The pricing strategy system has been developed and sharpened over 15 years with hundreds of clients in a broad variety of industries. Benefits Increase gross margins anywhere from two to four percentage points in the first year alone on affected items Maximize profits by squeezing higher gross margins out of less price-sensitive transactions Support a pricing architecture that is strategic, market-based, and disciplined Build customer loyalty by offering each customer maximum value for money The Strategic Pricing module analyzes your database for customer and order information and then classifies customers by type and size. It then exports your customer data to SPA, which sends back recommendations for pricing items by customer and product.
Perhaps the only consistency is that people have deeply passionate views on this topic. However, there are still many misperceptions about how the model works, and the purpose of this post is to clarify some of those misperceptions. I am an Uber investor and board member, and therefore expect that many will dismiss these thoughts as naked bias.
But consider that as a result of my role I have access to more information that might enable a deeper perspective. I also have quite a bit on the line, and as a result have spent a great deal of time contemplating the policy as well as the potential alternatives. Uber does not own cars and does not employ drivers.
Each day, and each hour for that matter, these drivers decide whether or not to open the Uber application and accept requests for rides from Uber customers. These drivers are not bound by exclusivity. These expenses include payment processing, payment fraud, refunds, customer service, dispute resolution, cellular handsets and service fees for the drivers, and local regulatory efforts.
The bottom line is that this is a low margin business — much more akin to Amazon than Google. However, since its launch of the low-priced uberX brand over 18 months ago, Uber has been laser-focused on leading at all price points. The company has also intentionally worked to lower price on uberX as often as it can in some markets it has already lowered price four times.
Despite this, some competitors still hold on to the convenient delusion that Uber is solely a high-end service, perhaps akin to CDNow assuming Amazon was only a bookstore. Ever since the company first encountered feedback about its pricing model, the company has gone out of its way to make sure that customers are aware of the policy and how it works.
They have inserted special splash screens where the customer has to key in a specific confirmation of the increased rate. Additionally, the company has gone out of its way to publicize how and why the program works.
The answer lies in understanding that Uber is fundamentally a marketplace, where supply is controlled not by the company but by the legion of independent contractors and transportation providers with whom they work.
There was a supply-demand imbalance, and the result was a lot of very unhappy customers.
So the Boston team had an idea. What if they offered the drivers a higher price to stay on the system longer until around 3AM? Would more take home dollars for drivers increase supply? In just two weeks they had a resounding answer. The supply curve was highly elastic.
Drivers were indeed motivated by price. Based on the results from the Boston experiment, Uber implemented its dynamic pricing policy to be used solely when demand is materially outstripping supply. In essence, there are two functions of the increased price model.
One is to increase supply. The second function of the price increase is to temporarily intentionally reduce demand. Through these two mechanisms, the company is able to a increase supply, b assure reliability, a key tenet of the company, and c maximize the number of completed rides.
Supply and Demand Curves If you were to pick up a copy of any introductory economics textbook, in either the first or second chapter you will find a description of the supply-demand curve.
It is the key operating model for economic analysis, and is as fundamental to economics as DNA is to biology. As one might expect, the demand and supply curves are the first two sections.
The Boston experiment, and every effort since then, confirms that higher prices increase supply, all things being equal. This is true in every market the company has entered. On the demand side, the company has confirmed price-elasticity in two different areas.
First, when prices surge, they see an immediate reduction in open-to-order ratios. As expected, higher prices do indeed reduce demand.
The market should operate efficiently. When demand outstrips supply, dynamic pricing algorithms increase prices to help the market reach equilibrium. Of course, these situations are always temporary, eventually supply outstrips demand, and the price falls back to normal.
If demand were to spike with no resulting price increase, you would have what is known as an economic shortage. With dynamic pricing however, the variable Q on the graph is further to the right than it would be without.
More absolute rides are fulfilled precisely because supply increases. With no ability to increase supply, they are left with the alternative of selling to the highest payer.There is no greater profit lever you can pull for your business than a disciplined pricing strategy.
Developed through an exclusive agreement with Strategic Pricing Associates (SPA), Epicor's Strategic Pricing simplifies the task of getting the prices you charge to their optimal level. The pricing strategy system has been developed and sharpened over 15 years with hundreds of clients in a.
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McDonald's (NYSE:MCD) is taking pricing competition in the fast-food industry to a new level with its pricing strategy, reports Reuters. The chain is using whole dollar price points for soft. Pricing strategies used by McDonald’s. For sustaining in the market for longer period of time McDonald has adopted competitive pricing strategy where prices for the range of products are decided by firm keeping in view prices set by competitors in the market (Kuratko, ).