The transportation industry is continuously evolving parallel to the competitive market, moving at the speed of now. Transportation is no longer a mere service to deliver goods or for moving people from one place to another in exchange for a fee. The dynamics of pricing strategies have changed for both the passenger and commercial segments of the transportation industry with Predictive Analytics.
Predictive analytics factors in the volatility of the market to develop the right Dynamic Pricing Strategy for businesses.
What is Dynamic Pricing?
Dynamic Pricing is an automated pricing strategy that is driven by demand changes in the market. The dynamic model of pricing takes customer behavior, competitor pricing, demand patterns, global economy, fuel prices, and other external factors into account while providing hyper-personalized pricing to the end customer at the point of purchase. Predictive Analytics tools perform extensive real-time computing to deliver these results.
Usage of Predictive Analytics with the data procured by IoT and IIoT sensors in the transportation industry can segment the customers on microscopic levels and determine a pattern concerning time, economic constraints, and other factors. It also considers systematic factors such as fuel pricing, season, and location to come up with an ideal pricing strategy.
How does Dynamic Pricing work in the Transportation industry?
Customer-centric Passenger Transport Business: Walking into 2020, Customers are hyper-aware of their requirements and seek seamless user experience. At the same time, the transportation industry has become a full-blown marketplace online. Transportation companies, be it Airlines, Railways, or Cab Services, provide real-time intelligence on best pricing, offers, and discounts to their customers based on Predictive Analytics Insights.
To provide this experience to the end-users, transportation companies invest heavily in Predictive Analytics tools to automate pricing by factoring in known variables for their customers- most preferred destinations, seasons, frequency of travel, expenditure on travel, and more. The Aviation industry under the transportation sector was the first to implement a Dynamic Pricing strategy, and eventually, all passenger transport industries followed suit. The modern-day Travel and Tourism business has now radically shifted towards the dynamic model of pricing globally. The dynamic model of pricing has been extensively used by many popular app-based cab services today. Apart from the base fare and the distance of the trip, variables like the day of the week, the time of the day, weather, availability of cabs in the area, fuel prices, parking/toll charges, etcetera are factored in the calculation of the estimated fare for the end-user.
Business-centric Freight Transport Business: Integration of Predictive Analytics in Freight Transport business accurately assesses optimal utilization of terms of the contract in the order fulfillment process. A statistically robust data-driven approach for shipping and logistics companies can track frequencies of order, delays, failures, deficiencies in warehousing, the surge in fuel prices, and more. Predictive Analytics can find patterns in this data and provide accurate forecasting of pricing for the customers. This design identifies the degree of customers’ need to avail the services. Based on that, Predictive Analytics can influence the pricing for a short time, i.e., at the forecasted point of purchase.
Challenges in integrating a Dynamic Pricing Strategy:
Passenger and Freight transport businesses face challenges in integrating an end-to-end Dynamic Pricing Strategy because of:
- Government regulations for Public Transport Companies
- Non-upgradation of the legacy order management systems
- Inaccurate targeting of pricing, offers, and discounts (leading to spiral-down discounting, loss of margin and price erosion)
- Ethical contradictions related to price discrimination for customers
Right Approach to a Dynamic Pricing Strategy:
- Usage of Predictive Analytics for data-driven segmentation of customers
- Usage of multi-level real-time data to forecast demand in the market
- Application of Artificial Intelligence, Machine Learning to identify business opportunities
- Aligning of Branding and Marketing strategies to leverage Dynamic Pricing
- Evaluate offers, and discounts based on data-driven insights
Here is Enquete’s Dynamic Pricing Action Plan for your Transportation Business
- Establish the underlying architecture of Data Analytics: In today’s world, Data is everything for your business. We recommend you to build a data collection and processing structure where you can integrate variables such as transactions, base prices, digital channels, offers, discounts, competitor data, and other relevant information.
- Identify and segment customers accurately: Accurately aligning your pricing with customer behavior has immense potential to drive revenue to your business. We highly recommend you to segment your customer data based on their affinity to reach out for your services. With advanced Machine Learning and AI capabilities, you can process large volumes of information-enriched data-sets that will automate the process of grouping the customers according to their behavior. For example- A 19-year-old guy who has traveled during the summer holidays for the last two years is most likely to plan his trip for summer this year as well. He will probably be mindful of the current prices (from you and your competitors) and will choose the most economical price/mode of travel while booking his trip. Whereas, a businessman who flies almost regularly and in an unplanned manner is less likely to evaluate prices to book his flights. He is also most likely to book the trip on the day of travel or the day before.
- Introduce a Recommendation model to cross-sell or up-sell services: Now that you have the right Data Analytics architecture and accurate knowledge of your customer segments utilize the point of purchase moment as a business opportunity to provide the customers with relevant offers. It will further boost your company’s revenue as well as provide customer satisfaction with the entire booking-experience.
Regardless of challenges, you can always find the right way of implementing a Dynamic Pricing strategy in your Transport Business. Reach out to our team of Data Scientists for a consultation on Dynamic Pricing Strategy that will be specific to your business.
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