Depending on your business, you may have busy times and slow times. These ups and downs can affect the amount of money you’re making throughout the year. In a perfect world, businesses would have a steady flow of guaranteed profits. However, many eCommerce businesses are designed to be seasonal. This means that most of your profits are derived from certain peaks throughout the year. Since this is the case, your pricing strategy needs to reflect this.
When it’s peak season, profits roll in with ease. However, the low seasons can bring stress and challenges to business owners as they can genuinely struggle to make ends meet. It is difficult to make peak season profits stretch through these lulls. Although there are some fixed overhead costs, there are many variables that come into the mix. So how can seasonal businesses mitigate these issues?
With a cunning pricing strategy, seasonal businesses can make profitable gains during the peak times that leaves them in a more competitive position. By implementing a yield management pricing strategy, it will help businesses capitalise on profits from a good or service depending on demand. A good example of yield management pricing is within the travel industry. Hotels and airlines implement prices that spike during the peak season and decrease when travelling isn’t as desirable.
During school holidays, there is a finite amount of time that people can use to take their families on a vacation when school is out. This means there is demand to travel. The main principle is that since there is demand for a limited resource, in this case flights or hotels, people will pay a premium to have it. They really want to use this time and they are willing to fork out more money to secure that resource. The ordering cost is higher for consumers to get this service.
However, during the slow season, when kids are back in school, the demand decreases for flights and hotels. This means that the consumers need some form of incentive or price reduction to buy. Often you will see promotional sales or discounts given to reduce the ordering cost for the consumer. If the overall ordering cost is lower, then you might attract more people.
Implementing a yield management pricing strategy
Yield management pricing strategies can be implemented in a variety of ways. Hotels and airlines often take a seasonal approach. They leverage the seasons to structure their pricing. They divide pricing into several seasonal categories such as high, mid, and low season. Other times, you will see pricing strategies that play off the days of the week. Weekends are often busier than weekdays for hotels. Therefore, hotels will raise prices on the weekend and lower the rates during the middle of the week.
Another option is pricing that differs during specific times of the day. Airlines have flight times that are more desirable to take for business people such as the end of the work day. These prices might be higher than the 10pm flight that would get a business person home quite late. The movie theatres also implement this strategy with different matinee prices and evening prices.
By implementing yield management pricing strategies, your seasonal business can do better throughout the year.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.