Dynamic pricing is in the air. According to Thomas Gregorson, Airline Tariff Publishing Company (ATPCO) Chief Strategy Officer, dynamic pricing is on its way for the travel industry in a variety of different formats. In effect, by accessing first-party data, analytics and pre-selected preferences from prospective travelers, airlines can better target their customers and cultivate personalized pricing. This micro-segmenting of consumers, based on their prior travel habits, allows brands to deploy offers based on what consumers are willing to pay at a given moment.
How Will Dynamic Pricing Be Deployed?
ATPCO is working with airlines to deploy dynamic pricing three different ways, some of which are being piloted in the airline market already, all of which aim to allow airlines an enhanced pricing model for their pre-filled fares. The various options include optimized pricing, adjusted pricing and continuous pricing (see graphic below), with continuous pricing being the most targeted option. Continuous pricing is also the trickiest dynamic pricing strategy to implement, with much of the pricing variations completed in the moment. At this time, Gregorson indicated that optimized pricing is being used by many airlines, and adjusted pricing is in the piloting phase.
Who Is Already Using Dynamic Pricing In Travel?
In some sectors of travel, dynamic pricing is already being implemented. According to HospitalityNet, “Airbnb has already built in sophisticated dynamic pricing algorithms to those hosts that select to use them. Property owners can choose to set a price manually or utilize the dynamic pricing algorithms provided by Airbnb to automatically determine the cost per night.” Airbnb has three key factors they rely on: seasonality, day of the week and special events. Airbnb also has more than 70 additional categories on which pricing variations can be calculated, some of which are criteria selected by the consumer and some of which are internal determinations.
How Can Dynamic Travel Help Brands In The Future?
As dynamic pricing becomes more widely implemented across airlines and other travel purchases, its effectiveness may be leveraged to gain loyalty, tailor relationships with consumers and create additional monetization opportunities. However, how travel brands segment their buyers will have to be done thoughtfully to avoid discriminatory pricing or practices that raise the hackles of consumer protection agencies. It is still the early days for dynamic pricing in the travel industry, as Aldo Ponticelli, Head of Distribution Strategy & Systems Support at Alitalia, points out: “The journey to personalization in the airline industry has begun, but this is a marathon, not a sprint, and we are just at the starting line.”