Flexible pricing – all you should know about it

27 January 2022 - 14:20, by , in Best practices in price monitoring, Comments off
Reading Time: 5 minutes

The eternal struggle of man is what kind of a person is right to be, high-principled and consistent or yet flexible and adaptable. Do you stick with your decisions, whether on a personal or business level or are you the one open to negotiating?

We are going to give you the explanation and examples through pricing strategies. This article will help you realize which approach is better for your business and maybe inspire you to decide which one you should apply in your personal life.

flexible pricing

What is flexible pricing?

Flexible pricing is one of many pricing strategies that could be applied to setting up prices for goods and services. In the case of flexible pricing, a final price is negotiable, meaning that sellers and consumers can discuss prices, to either lower it or push it up from the original price. Yet, in most cases, it serves the management to simulate demand and bump prices up to increase profit or drop the prices to increase sales. 

This pricing strategy allows retailers to set different prices for the same product depending on a customer. Whether it is an agreement established through negotiation or a personal assessment of the seller, prices can fluctuate. Also, the prices of a product may differ in different geographical locations.

Strategy can be implemented concerning:

  • Market 
  • Product
  • Timing
  • Technology

We all compare prices from the country where we live to prices from foreign countries when we travel and very often we notice the difference. You have to know that behind this phenomenon is the flexible pricing strategy. Prices will differ based on a country, sometimes even regions within one country. Also, sellers set prices based on a segment. For example, in raw material industries, the iron price will be lower when sold to the steel industry than to a bicycle chains manufacturer.

When considering the perceived value of a good or service, sellers can decrease the prices of an overpriced product or increase the prices of products they consider valuable to their clients. Of course, such decisions are made based on thorough research and analysis of the target market.

Also, there is room for a price adjustment when sellers are in a position to cut costs that don’t bring value to an individual client. For example, a flower company charges a certain price per arrangement that includes delivery by default. In case the client insists on picking up the flower arrangement in person, the company can lower the final price.

When a manufacturer improves the production process by implementing technological solutions or improving the existing ones, the production costs will increase, which will affect the final price. In this case, sellers decide on price adjustments. Especially if there is a significant time difference between production and delivery of a good and the entire process improves in the meantime, clients should be aware of the price fluctuation possibilities.

Examples

  • Flexible prices are common in tailor-made industries as well as highly competitive markets. Companies that sell perishable goods, home appliances, auto dealers, hotels, and construction companies are often open for price negotiation
  • In case customers request a specific service from a hairdresser that hasn’t been officially offered, therefore the price for it was never set, the price can be negotiated. The hairdresser aims to charge extra for special requests while clients’ perspective on prices is based on their current industry knowledge. 
  • In the case of carpenter’s services, clients are charged based on a level of customizability requested while at the same time, they are welcome to suggest a price based on what they can afford. 
  • Another example is the construction industry due to project bidding. When companies bid for a project they don’t know what their competitors’ offers are. At the same time, each company aims to offer a competitive price, get the deal, and earn as high a profit as possible. 
  • When you consider last-minute deals, you should know that behind the offer is a flexible pricing strategy. Last-minute flights are considered perishable goods since the seats for the flight that took off can’t be sold. Hence, the price for the vacant seats several days or even hours before the flight significantly drops to increase sales.
flexible pricing benefits and downsides

Benefits and downsides of flexible pricing

The main advantage of this strategy is negotiation because it allows clients to pay for what they need and not the dime more. From the client’s perspective, this strategy maximizes value due to the ability to reduce costs that bring no value and create prices for the customizability of a service or product per request. 

On the other hand, sellers have the freedom to adjust prices based on market forces and clients’ needs while striving to increase sales and profit. By lowering prices, when a client can not afford a product or service at the original price, a seller can keep the sale, instead of letting a client buy from a competitor. When knowing how to utilize the flexible pricing strategy, sellers can increase prices for clients who are willing to pay more, and therefore profit will rise. 

In general, this strategy is beneficial if implemented well, but some sellers can enormously benefit, such as sellers of perishable goods. We all notice across retail stores that when the expiration date comes closer, the prices go lower and lower prices increase sales.

In addition to the undeniable benefits that this strategy offers to all parties, both seller and buyer, it has certain disadvantages. Companies that implement flexible pricing should be cautious about their image. Charging every person differently for the same product could cause clients’ dissatisfaction. Those who were charged more can feel robbed, while those who were charged less can question the product quality. Either way, if realizing price inconsistency, every client can feel deceived. Price fluctuation can negatively affect a company’s image and eventually result in losing loyal clientele and sales.

There is a risk of losing profit when sales representatives are not trained well for negotiation or when lowering prices becomes a habit. It can be risky if a company decides to change its pricing strategy and stop adjusting prices for its clients who expect price flexibility by default.  

Takeaways

  • Depending on the industry you are in and the set business goals you should wisely choose your pricing strategy. There are many to choose from. Nowadays, the competition is enormous in almost every industry, new sellers are popping up every day with new products and services to offer, therefore, from the customers’ perspective the major point of differentiation is price. If we consider eCommerce we’ll notice that in some industries prices are changing several times a day. There is a continuous price fluctuation on the market which indicates that a certain level of price flexibility is recommended along with the dynamic pricing approach to stay competitive.
  • If you manage an online store, you should consider combining these two strategies. The flexible pricing strategy will correspond with clients on an individual level, which increases the possibility of them becoming loyal to your business. Along with this strategy, dynamic pricing will focus on the market to ensure competitiveness.
  • Constant price fluctuation due to the supply and demand changes makes it easy for buyers to purchase at the price they are willing and able to pay. On the other hand, it makes it hard for sellers to keep up with the changes. If you, as a seller don’t respond and adjust your prices you risk losing sales. In the case of fast-paced eCommerce, there is a solution in the form of software that monitors prices and alerts you when it comes to price changes, and even suggests prices that will bring you more profit.

 

About Price2Spy

 

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This blog is a place for eCommerce professionals to discuss ideas, methodologies and strategies to compete more effectively in the ever more tightening world of online retail. We explore things like competitive price monitoring, competitor business intelligence, competitive pricing, and counter-intelligence in general.

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