Price Optimization: How to Make Profits While Providing Value
Offering the right value for money to your customers and ensuring your profits don’t dwindle is usually a balancing act. Business owners often face this challenge, and the rising competition in the digital world isn’t helping either. Getting proper price optimization is becoming an increasingly major challenge.
This is especially true for industries that have to act fast during peak seasons because there is always the possibility that your competitor may outdo your pricing. At the same time, lowering your prices and reducing profit margins to divert the customer traffic to you is not a feasible tactic.
One of the markets often faced with this dilemma is the car rental market. The industry’s complicated pricing structure, along with its elasticity, makes it especially difficult to determine pricing.
Nevertheless, optimizing prices the right way for your products is among the key aspects of running a successful business. In this blog, we explore this topic and dive into how you can get this right in the context of the car rental industry.
What is Price Optimization?
Price optimization is defining the right price for a product that ensures profitability and value to the customers.
This is done using several pricing models and analysis. Price optimization aims to ensure that pricing allows for more significant market share value, sales, profit margins, and a more prominent brand name.
Furthermore, the initial cost price is the one you define based on your preliminary analysis. Then you offer a discounted price based on competitor and market situations. There is a third category called promotional price, which is usually much lower than the initial cost but is done to attract customers for promotional offers and limited-time deals.
What are the problems with it?
Defining the right price is crucial for a business. However, constantly, people fail to carry it out the right way.
Failure to calculate operational costs
Businesses often get muddled in the loophole of defining prices to beat their competitors or attract maximum customers. They often fail to price items in a way that covers the business’s costs. After receiving money from the products, profits have to be calculated in a way that makes your business sustainable while you earn profits.In the car rental industry, the complexity of price optimization in a post-pandemic world comes from the lack and inconsistency of historical data owing to the lockdowns all over for quite a long period. This necessitates businesses to make use of their own internal data sources like mobile applications and customer feedback mechanisms for collecting information.
Do not monitor competitors closely
Maybe you are looking at competitors manually and fail to realize they are running a campaign that offers free insurance or other added perks. Then you wonder where your customers have gone!This is often true in car rental, where many competitors exist. Specific rate shopping tools offer excellent data. However, a significant drawback is that they do not provide actionable insight, leaving this in the hands of the pricing team, who spend considerable time and resources undertaking price optimization.
Selling for a low price
Pricing low is often a double-edged sword in the car rental industry. While offering discounts is a lucrative method to attract customers, it is also an incredibly risky move. It puts businesses at risk of losing money and having much lower margins.You have to understand the rates at which your customers are willing to buy your products that are still competitive with your competitors. All of this has to align with your company’s KPIs for pricing and long-term goals. Tracking consumer and competitor data is imperative while defining your profit margins.
How to do it right?
There are many wrong ways to approach prize optimization. However, the right approach to pricing can impact your business on various levels, including revenue, fleet efficiency, margins, and fleet planning for the upcoming year.
Here are some suggestions to help you price right.
Understand your target audience well
Before you define your price points or even set your goals, you must understand who you target as customers. This includes data such as their demography, age, familiar places they prefer to book (online or offline), and purchasing behavior. This data can help you understand the source and type of demand, such as rental length and car segment.This data will help you market your products to the correct demographic without wasting your time, energy, and resources. Further, it will help define what pricing would be optimal for them.Understanding your target audience will also help you define them further into different categories. You can then devise pricing points for offline and online sales and different tiers of products.
Make sure you are offering them the correct value
An important part of pricing is understanding the product’s value to the consumer for a given price. This depends on real-time demand factors such as season, event, current affairs, location, etc.For example, raincoats and umbrellas are on the lower end of necessity among most people during summers. This changes drastically during the monsoon seasons. Similarly, in the car rental industry, the post-Covid world is seeing an upsurge in the number of car rental bookings.Thus, you can determine the value for your fleet or even each car based on your understanding of the trendy locations and hot dates. For example, you can determine when to move the fleet to the airport locations based on the city heatmap.
Always monitor your competitors
Competitors always have to be on your radar when you optimize your price points. Understanding their pricing behavior, how often they change, why they change at that frequency, and most importantly, how they reach their customers with the new pricing.A fleet management software is typically useful in this situation since it helps manage and increase or reduce fleet effectively. Furthermore, rate monitoring and shopping tools might assist you in gaining insight into your competitors and their pricing.When you understand these factors well, you can devise your pricing strategy and ensure it stands out to the standard target audience better.
Define your goals well
Price optimization depends on customers, competitors, and you. They are dependent on the goals you want to achieve, the customer’s rapidly changing behavior, and the competition’s pricing.Do you hope to enable a fixed number of rentals? Or start renting out a premium subscription service? Or maybe you do not want to compromise on the pricing of a high-value car?You must have answers to such questions while optimizing and defining the bottom line – what are you aiming for with this price point? Therefore, once you have clarity over such questions, you can confidently seek to align the pricing with your goals when they are well defined.This is where a price optimization tool can help you massively. A tool like Rev-AI can be beneficial when trying to price right since it offers you the type of data and insight that is practically applicable to your price optimization strategy.
Rev-AI – The solution you need to optimize your pricing the right way
The car rental industry is one of the most competitive sectors in the market. Many businesses are trying to survive by lowering their prices and offering more deals, but this doesn’t help them win customers over. The reason for this is that many consumers look for a bargain when it comes to car rentals, so they will always choose the cheapest option.
Hence, a price optimization platform like Rev-AI that can understand you, your customers, and your competitors are essential. Rev-AI will comb through multiple sources of data before recommending price points and consistently provide you with reports and suggestions for your decision-making process, all powered by AI.
Rev-AI is the most advanced software in the market that helps car rental companies to optimize their prices. The software can be used for both long and short-term rentals and is one of the most powerful tools to help you maximize your profits. Rev-AI has been developed with the help of experts who have a vast experience in this field and have worked with many large companies around the globe.
Rev-AI makes data more than just numbers on a screen. It assesses the hyperlocal market condition and competitors with over 25 demand indicators. It then uses machine learning techniques to analyze these indicators and generate insights that help you price your car rental company efficiently and in line with customer expectations.
Businesses used to use historical forecasting techniques, but they are no longer sufficient in this post-pandemic economy. Knowing these precise, high-demand days will help you price your cars efficiently and in line with customer demands so that you can earn more margins per rental.
Rev-AI can also project accurate prices for up to 90 days and for almost all your preferred locations. This enables you to plan your inventory, reduce overstock and increase revenue by getting more customers interested in renting their vehicles using your company’s vehicle fleet.
Price optimization is undoubtedly a make-or-break point for your profits. More importantly, they can also affect your business’s sustainability and longevity.
Thus, you must have experts doing this for you with an intelligent solution that can understand your business world quicker and better.