Setting prices right is a major and challenging task for all businesses even under normal conditions. However, this task has never hitherto been more difficult and crucial: how to price during and after a pandemic?
Pricing is of decisive importance for all businesses in all sectors; setting prices right often makes the difference between success and complete failure. Finding the optimal prices is the easiest and most effective way for any businesses to increase profits. As reported by McKinsey, a 1% rise in price would generate an 8% increase in operating profits for an average S&P 1500 company if the volumes remained stable. But would volumes stay the same if I increased prices with 1%? — could anyone rightfully ask. This is no easy question and could take years of market research and optimization to find the correct answer; indicating that pricing is a challenging task even under circumstances we are used to. However, due to the coronavirus outbreak, now we entered completely uncharted territories characterized by uncertainties and unknowns. So how to price during and after a pandemic?
Recently, McKinsey came out with a great article entitled Pricing in a pandemic: Navigating the COVID-19 crisis. This must-read piece describes how to manage the unprecedented variability in demand, then lists five things to get right and five things to avoid in pricing during the pandemic. We at DynamO found two messages especially important:
- “Not every demand problem can be solved with pricing. For example, offering concert tickets for free right now will not fill big-city arenas.”
- “Relying on old price-sensitivity research is not a good idea. In a dynamic and evolving market, market price tests become obsolete after just a few weeks or months. To understand changing price points, companies should run new pricing-sensitivity research and market price tests immediately.”
Pricing during the pandemic may be as difficult as pricing gets, but those who face this challenge are in fact the luckier ones: for numerous businesses that were forced to completely halt all their operations, pricing is temporarily not of concern. Businesses in the entertainment industry were one of the hardest hit by the restrictions enacted in an effort to contain the spread of the novel coronavirus as much as possible. Now that the number of COVID-19-related deaths and new infections have been considerably started to slow down in most of the countries worldwide, theaters, cinema operators, concert and festival organizers, amusement parks, sports facilities, etc. are eagerly looking into when they can reopen.
An equally important question is, however, largely overlooked: how to reopen? It depends, of course. It depends on an unknown number of variables. Yet again, the world is not going to be the same as used to be before the pandemic, at least not any time soon. What preventive measures will large communal activities have to take to be allowed to reopen? Will they have to operate at a reduced capacity? For how long? Will their customers go back? How soon? How much people will be able, or will be willing to pay for the tickets? Will the crew go back, or did they need to find another source of income? Can event organizers count on government support? When can we expect the onset of the next wave of coronavirus infections? How to handle the huge variations is demand, how to price?
Such questions are set to haunt the world for quite a while, at least until vaccines will be available. In these daunting times of uncertainties and unknowns, demand for an endless amount of products and services is practically impossible to predict. Those trying to keep using manual and fixed pricing to respond to the unpredictability and the unprecedented variability in demand are taking a huge risk of failure.
Businesses switching to dynamic pricing, however, can tremendously improve their adaptability and general outlook. Dynamic pricing enables businesses to automatically adjust prices according to the demand and, hence, to find the optimal price at any time. Additionally, dynamic pricing has several more advantages to offer, including
- Boosted sales
- Maximized profits
- Greater awareness and overview about the competitor’s prices
- Higher levels of demand
- Increased customer satisfaction
- Demand-reflecting prices
- More insights into customer behavior and price elasticity.
DynamO encourages businesses to fight the crisis and manage the uncertainties with innovation. We have a very powerful tool that can help others manage their businesses even in dire situations: our dynamic pricing solutions offer resilience, versatility, and competitive leverage to our customers. Understanding that those hit the hardest by the outbreak may not have resources to innovate now, we recently announced special offerings, including discount from our prices and deferred payment constructions.
For our offers, do not hesitate to contact us at [email protected]