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Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways

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Introduction

Kotler, Burton, Deans, Brown, and Armstrong, (2015), are of the viewpoint that dynamic pricing is considered to be referred as that surge pricing strategy, in consideration of which a business entity sets the flexible pricing for the goods and services it offers to the potential customers and the end market. This price of the goods and services is known to be set on the basis of the demand of the current market and its situation (Kirschen & Strbac, 2018). In this connection, the given paper is focused on determining the past researched studies that have explained the synergy of dynamic pricing in different ways.

Literature Review on Dynamic Pricing

Based on the viewpoint of Babaioff, Dughmi, Kleinberg and Slivkins (2015), it was examined that the problem of designing the revenue-maximizing pricing strategies mechanism becomes difficult for the seller when the same has a limited supply. Concerning to this, the author suggests in the article that the business organization should follow the strategy of posted price mechanism which would ensure that the pricing of the product and services are implemented on the basis of the demand of the customers as well as the availability of distribution capabilities of the organization. In this concern, it was examined that the Commonwealth bank uses the synergy of dynamic pricing as the intermediating algorithm to match the supply and demand that arises in the financial industry.

On the other hand, Jia and Tong (2016), states the problem related to the concept of dynamic pricing concerned to the aspect of electricity in connection to the retail market. The game named as Stackelberg is recorded to be used by the experts with regards to undermining the interactions that exist between a retailer and the consumers of the electricity. The retailers are known to set the dynamic hourly price of the day ahead for the electricity consumed by the consumers. This pricing strategy is known to be set based on the dynamic pricing strategy of the real-time consumption made by the consumers in order to adjust as well as maximise the individual consumer surplus. This dynamic synergy of pricing has recorded to be an optimal aggregated demand-based pricing strategy. Take, for instance, the dynamic pricing strategy used by the Commonwealth Bank in the concern of providing real-time loans to its clients because the same provides the bank with the advantage of more flexible lending to the clients.

Moreover, as opined by Papanastasiou and Savva (2016), when the products that are of uncertain quality are first introduced in the market, the consumers may take time to choose the product based on their purchasing decisions. This is because the consumers would wish to anticipate the peer reviews made for the products. In this connection, undermining the importance of the dynamic pricing, the articles suggested that the synergy of dynamic pricing strategy would help the organizations deal with the sale of these kinds of products. This is because social learning affects the strategic decision and interaction that lies between the monopolies of the dynamic pricing as well as the population of the customers that is looking forward to buying the product

As opined by Den Boer, (2015), the synergy of dynamic pricing and its learning have turned its coins in recent years from the help of the different scientific communities. In this connection, the precise aspect of the importance of the dynamic pricing strategy in the subfields of the marketing, economics, finance, econometrics, as well as computer science has been discussed. It was undermined with the help of the article that the author has explained the relationship that lies between the methodology of surge pricing strategy and the success of a business entity. The author also identified that the aspect of surge pricing would help give directions to the future success and research of any productive business organization. Concerning to this ideology, the Commonwealth bank uses the surge pricing strategy in its business transactions because it increases the capability of the concerned financial organization to re-bundle their needs and cross-sell their services to the clients.

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According to the viewpoint of Chen and Farias (2018), every business organization should consider the system of the canonical revenue management in the concern of selling any product over a finite horizon of customers under the theory of posted price mechanism. The dynamic pricing mechanism will help the customers choose their desired products and services on a random over time and strategic basis of their purchases. This, in turn, will increase the interest of the customers about the time of their purchase and they will make sure that the goods and services are purchased over time. Customers would not like to purchase any goods or services at a high price because of the timing, unless and until the same is determined to be an emergency for them. In light of this, the article was concluded with a statement that the mechanism of the surge pricing could be stated to be optimal for both the customers and the business organization. Comparing this aspect with the business transactions of the Commonwealth Bank, it is undermined that the flexibility in the contextual awareness of the client needs of the bank is increased with the use of the surge pricing method. This, in turn, also increased the loyalty and stickiness of the clients connected to the Commonwealth bank.

Case Study Analysis

Based on the analysis of the case study named as CommBank Retail Insights, it is undermined that the impact of pricing strategy primarily affects the marketing condition of the products as well as the services that are offered by the financial firm of Commonwealth bank (Commbank.com.au. 2019). As opined by Porter and Heppelmann, (2015), the customers are profoundly sensitive towards the pricing strategies a business implements on the products and services it offers to the customers. This is because the customers in the current market condition wish to purchase the best of the goods or the services at the lowest of the price (Nagle & Muller, 2017). The price theory connected to the marketing mix is determined to be the most complex one because the same is recorded to change the purchase decision of the consumers on the first paradigm as compared to the other theories of the marketing-mix that are related to place, people, promotion a process (Becker, 2017).

Commonwealth Bank in 2011 stepped up its discounts but re-instated them this year clearly demonstrating its aggressive pricing policy. Commonwealth bank captures the home loan market by pressurising net interest margin by providing big package discounts. Commonwealth bank has become most competitive in $300,000 home loans and $1,000,000 loans by adopting ‘barbell’ pricing strategy, due to which they have the cheapest EAR of 5.3% on $300,000 loans and 5.15% EAR on $1,000,000 loans clearly indicating that is giving equal importance to the smaller & jumbo loans (mba sKOOL.com, n.d.)

Therefore, it can be stated that financial organizations can effectively use dynamic pricing strategies as per the demand response of potential customers.

Conclusion

Given the above research findings based on the pricing strategy of the marketing-mix theory, it can be seen that the pricing method is recognised to be an optimal strategic implementation that can be taken into consideration by any business organisation as the customers change their purchase decision mainly depending on the price of the products. When comparing the findings from the literature review on dynamic pricing method with the real world case-study of Commonwealth Bank, it can be seen that the financial firms can turn flexible on the effective use of the surge pricing method and also gain the sustainment of their potential clients for a more extended period of time. However, the point of dissimilarity that arises s that the customers do not will to purchase the goods or services at a higher price of the timing of the surge pricing unless and until the same is an emergency for the customers and this would turn to be a loss for the business organisations.

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Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways. (2022, September 27). Edubirdie. Retrieved November 29, 2022, from https://edubirdie.com/examples/analytical-essay-on-pricing-strategy-synergy-of-dynamic-pricing-in-different-ways/
“Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways.” Edubirdie, 27 Sept. 2022, edubirdie.com/examples/analytical-essay-on-pricing-strategy-synergy-of-dynamic-pricing-in-different-ways/
Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways. [online]. Available at: <https://edubirdie.com/examples/analytical-essay-on-pricing-strategy-synergy-of-dynamic-pricing-in-different-ways/> [Accessed 29 Nov. 2022].
Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways [Internet]. Edubirdie. 2022 Sept 27 [cited 2022 Nov 29]. Available from: https://edubirdie.com/examples/analytical-essay-on-pricing-strategy-synergy-of-dynamic-pricing-in-different-ways/
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