Flexible pricing in the business is a pricing strategy where the final product price is adjustable. The product or service pricing remains open for negotiation with customers. Market driven factors such as demand-supply also play crucial role in price adjustments. Thus, the product final prices may vary due to several factors.
What is Flexible Pricing Business Model?
In Flexible pricing strategy, businesses are able to charge adjustable prices based on internal and external factors. Internal factors include direct material costs, variable costs, pricing strategy, and profitability analysis. External factors include the demand-supply relation, competitor pricing, customer negotiations, and economic factors.
Price flexibility may occur due to several factors. Many industries adopt to the flexible pricing strategy such as construction, airlines, hospitality, etc. Flexible pricing model is more popular in the services industry where setting fixed prices may not attract large sales.
Flexible pricing can also take the form of different prices for the same products in different regions or customers. For example, a local manufactures may offer discounted prices for a large export order than fixed prices for the same products in the local market.
How the Flexible Pricing Business Model Works?
Business analyze the initial product costs and overheads. They add a percentage markup to the product costs to reach at a selling price. However, unlike fixed products, here the business would set a percentage range of markup that will allow the margin of price negotiations.
Flexible pricing strategy is easier to apply with B2B sales and service industry. Businesses looking for large sales acquisition often negotiate product unit prices for large sale orders.
Flexible Pricing strategy may take several forms, let’s see some of the commonly applied flexible scenarios.
B2b Flexible Pricing
Flexible pricing for bulk sales orders are the most common examples. Buyers and sellers negotiate the product pricing tied with the quantity and other costs such as shipping to the final destination. Most of the B2B prices require some sort of flexible pricing strategy.
In modern times, services industry remains another good example of flexible pricing. Hospitality and Airlines industries offer flexible pricing models. Seasonal demand plays a crucial role in flexible pricing strategy for these industries.
Engineering and consultation are other prime examples, where service providers need to create room for contingencies and keep the prices flexible.
Dynamic Pricing Adjustments
Modern e-commerce businesses like Amazon or eBay adjust the product pricing dynamically. They do it to beat the competition and generate more sales. Such dynamic pricing strategies have become the new normal for many e-commerce businesses.
Market Driven Flexibility
Seasonal demands, or economic factors affecting the demand-supply relations may also compel businesses to adapt to the flexible pricing.
Value-based pricing is another factor that derives flexible pricing strategy. Businesses may charge different prices for the same product/services to different customers based on the assumption on how they perceive the value of the product/service.
Flexible pricing strategy builds on the conventional cost-plus pricing model. The businesses calculate the initial product/service costs and add profit margins. Depending on the business industry and market factors, the businesses remain open to the price negotiations. Services industry in particular need to adapt to the flexible pricing strategy.
Advantages of Flexible Pricing
Some sales are better than no sales at all, for the sellers. Competitive disadvantage may compel many businesses to adapt to the flexible pricing (often reduction). Nonetheless, flexible pricing strategy offers many advantages to any business.
- It increases sales revenue by adopting dynamic price changes.
- It helps in customer retention with price negotiations.
- It helps maximize value to customer services by negotiating prices.
- Offers a flexible pricing approach that increases seasonal and market driven sales.
- Helps stay competitive with market pricing changes.
Disadvantages of Flexible Pricing
Flexible pricing business model may not be suitable for all industries. Some companies look for brand differentiation, where price flexibility may not seem a wise choice. Flexible pricing business model have some disadvantages too:
- It is difficult to offer flexible pricing for high-end brands and companies with competitive markets.
- It may be daunting task for a business to offer different prices for the same line of products.
- Offering flexible prices to small business buyers or with low volumes sales is often difficult.
- E-commerce platforms may receive bad customer reviews for offering different prices in different regions.
- It does not guarantee increased profits as it focuses on increasing sales volumes.
Many international brands in hospitality, airlines, and construction industries adapt the flexible pricing strategy. For example, the Hilton hotels and resorts will provide flexible prices to their customers depending on the choice of the booking room and amenities.
In e-commerce, platforms like Amazon have adopted flexible pricing strategies.