Reference no: EM133299993

Variable pricing Strategies

How would you feel if the price you paid for a product varied depending on the level of demand for it at the time you were seeking to make the purchase? the logic behind such a pricing strategy is reasonably clear. there will be many instances where the demand for a product far outweighs the supply of the product available. If markets are competitive and the principle of willing to pay applies, then there should be nothing wrong with expecting those who most value a product to be prepared to pay more for it if there are also many others who also value that product. While the logic is clear, it is likely that many people would feel such an approach to be unfair. Most of us are us are used to the idea that a product has a price which is the same regardless of who else wants to buy that product at the same time, and increasing prices when demand is high is just an example of 'price gouging'. there are plenty of critics of holiday companies who complain that prices of (for example) ski holidays are considerably higher during school holiday times than outside school holidays. Many people have come to grudgingly accept this fact of life, but if the principle were applied to other products, would there be a consumer uprising?

Demand-based pricing (or surge pricing as it is sometimes called) isn't that unusual. It is a way in which firms are able to maximize revenue. airlines increase prices for business travellers who do not want to stay over at weekends, Uber charges higher prices for cars at times of peak demand. Can the idea be transferred to products such as tickets for the cinema? the USbased cinema chain, regal, announced plans to trial the idea in 2018. Prices for tickets for more popular films will be higher than those for less popular ones. It hopes that by doing this, it can increase its revenue. Consumers would be incentivized to visit the cinema at different times to peak periods which might then lead to more seats filled more regularly and possibly a better customer experience. In part, regal is responding to a changing market position where the development of streaming services has led to fewer people making the trip to the cinema. regal intends to trial the strategy in a sufficient number of cinemas to see if it does make a difference before possibly rolling it out as a corporate pricing strategy.

Questions:

1. What might be the potential costs of adopting a variable pricing strategy for a firm like regal?

2. How widely do you think variable pricing strategies could be adopted? What sort of firms might face limitations in doing so?

3. Variable pricing, or surge pricing, is also given the more derogatory term 'price gouging'. do you think that such a pricing strategy is fair? explain.

4. What strategic considerations will regal Cinemas have to consider when deciding whether to adopt the idea of variable pricing following its trial in 2018?

5. Consider the possible outcomes of variable pricing in the cinema industry. do you think that the strategy will lead to increased revenue? explain.