Many traditional and e-commerce businesses are seasonal, and this seasonality will affect different industries in different ways. Stock control is one of the biggest challenges that surges in demand and seasonality will place on a business.
Seasonal demand fluctuations can also impact staffing, scheduling operations and more critically, cash flow. Consequently, individual businesses will adopt strategies to manage seasonality their own way. Many will employ casual or temporary staff to cope, a few will try to diversify product lines of inventory stock, and others will simply close during their off-seasons.
The nature of a seasonal business means that much of the business revenue is generated at specific times of the year. Therefore, an effective solution to managing the highs and lows of seasonal demand is to offer seasonal pricing.
This not only helps with managing inventory stock but by charging different prices for goods and services you can maximise cashflow during periods of high demand. Equally, businesses can smooth demand by offering discounts and reduced rates to help sustain the business over slow seasons and periods of lesser demand.
Dynamic or surge pricing is a pricing strategy where businesses set flexible prices for products or service based on present market demands. It is common in the entertainment hospitality and tourism industries where peak rates are charged over weekends, holiday periods and when special events are being held.
This dynamic pricing model uses algorithms that consider factors such as supply and demand, competitor pricing and other market influences. Based on the information algorithms provide, businesses can adjust their prices accordingly.
Industry price benchmarking is another great way to ensure competitiveness. To get the greatest benefit from dynamic pricing, you need to continually monitor industry developments to maximise your pricing model and to get a clear picture of how your competitors’ prices fluctuate seasonally.
Remember that pricing can also become an important factor for consumers as they seek out the best bargains and seasonal deals during peak retail periods. The right pricing strategy should benefit the business by maximising profits during seasonal peaks but should also provide value to consumers and a great customer experience.
A pricing strategy that aims to maximise profits based on demand for a limited good or service, yield management is commonly practised by accommodation providers and airlines. Simply put, prices go up in the high season and drop in the low season.
Yield management pricing is based on the concept that consumers will pay higher prices when demand is high for a limited resource. When demand is low for that same limited resource, you may need to offer discounts and deals to customers as an encouragement to make a purchase.
Common forms of yield management include:
- Seasonal pricing, where businesses have three different pricing categories dependant on high, mid and low season demand.
- Weekly pricing promotions that offer specials on specific days of the week. For example, Cheap Tuesday bargains, free with purchase and two-for-one deals are typically used by restaurants or cinemas to attract customers on traditionally slow days.
- Time of day pricing is used where an event or activity is more popular at certain times of the day. For example, with ticket pricing for shows where matinee performances are generally cheaper than ticket prices for evening shows.
- Last-minute deals are ideal for perishable items. Depending on your market and the popularity of your inventory stock, booking systems can be programmed reduce items that are close to expiry or alternately, to give slight discounts on early-bird sales and charge premiums for late-bookers.
Don’t be afraid to experiment
While larger profit margins may give businesses more room for seasonal price cuts, even small price reductions on inventory stock items with slim margins can have negative effect.
Repeatedly reducing prices during slow times may inadvertently encourage customers to wait until they can make their purchases at the lower prices. This just shifts demand from high to low season, reducing profits and may also damage your brand image.
Price alone won’t necessarily attract greater sales, it’s the perceived value for the consumer that counts. Split test pricing and offers to get to know your customers pricing preferences and to understand what has the most appeal.
Experiment with pricing to determine how different consumers are affected at different seasons to help find the optimal price where customers feel like they got a value.
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.