The following is a guest post by ChopDawg.com, an award-winning app development company that has worked with over 180+ startups and companies from all around the globe, helping them bring their web apps, mobile apps, wearable apps and software ideas to life.
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One of the most fascinating mobile trends we’ve been following for the last couple of years at Chop Dawg has been dynamic pricing.
If this term doesn’t ring a bell to you, you might be familiar with it when it comes to purchasing a ticket through an airline. Depending on how far in advance, and your browsing history with a specific airline, they will give you a certain price. The closer you to get a date, the more desperate you might be for finding an airline, the more expensive tickets all of the sudden become. At the same time, if they notice you’re a first time customer and you’re planning eight months out, you might pay for a ticket at a fraction of the cost a seat normally costs. Dynamic pricing allows airlines to maximize their profit margins, and increase their likelihood of closing a customer, making another transaction.
Sports franchises and theme parks are the latest to pick up on this business model. Philadelphia 76ers, and yes, Walt Disney World in Orlando, Florida, are two examples of this in effect… and now, mobile apps too.
Starting with mobile gaming via in-app purchases for game play, app developers such as us can determine where a user is in the game, previous purchasing history, location, and even if it seems they are about to quit the game, in order to determine the best pricing possible to close a sale.
Dynamic pricing, though as controversial as it might be from the consumer perspective, is here to stay, and is only going to get more popular thanks to modern technology.
For that exact reason, this is why your company may want to consider implementing the same in your mobile apps.
Outside of the traditional game mobile app, most of the products we build at Chop Dawg traditionally bill via a subscription model, or the classic eCommerce model. The concept of purchasing an app on the app store, though still relevant, has decreased dramatically in the last few years. That isn’t where the money is anymore (and for a select few, the money was never there, to begin with).
Dynamic pricing, for the entrepreneurs, executives, and companies reading this present the following opportunities to increase revenue:
1) Ability to modify pricing by region. If you’re offering your app in a town, city, or country with less purchasing power, you can adapt to this to help generate more revenue (even if it is less than some bigger markets)
2) Ability to modify pricing based upon demand. If you offer something heavily requested, you’re able to raise your pricing to maximize on potential revenue gains
3) Ability to use data on your app to determine when in a customer lifecycle they may want to make a transaction, and offer at the price point that best fits that part of the customer purchasing lifecycle
4) Ability to use customer lifetime purchasing history, to provide pricing relative to their previous transactions
5) Ability to lower pricing if based upon data, user is following trends where former users seem to cease using your product or quit
Dynamic pricing can work to retain customers longer, provide better pricing points, general more revenue altogether, and perhaps most importantly for a lot of you reading this, increase profit margins.
Of course, you have to play devil’s advocate to dynamic pricing from a consumer perspective, which is critical. The issue that dynamic pricing has brought up in recent times have been users feeling they can’t get the best deal, feeling like they’re being gouged, and that they are simply being taken advantage of.
Consumers, more than ever, are Googling for discount codes, and what others have paid. No one wants to feel they’re being cheated out on or paying more than they should be. You, as the business, must find that fair and right balance.
What I am trying to say here is just because it makes the most sense on paper, still doesn’t mean it makes sense in business terms. Every business model is different. You need to gauge by the app you’re running if this is something relevant to your user base, and if the potential loss of your audience is worth the investment. It isn’t for everyone.
Here is the big thing to understand, this exists. A lot of entrepreneurs who reach out to Chop Dawg, and business executives alike, aren’t thinking about dynamic pricing yet. They are set in the traditional, pay $X.XX a month, or save a little by a year… or purchasing a product for $X.XX. These are models you can implement day one. Realize that the time and investment costs when it comes to programming will be more, as customized algorithms and data will be needed, created, and planned; but for many of you reading this, it could be something to heavily consider.
Is dynamic pricing right for your business? Is it good for your consumers? Start asking yourself these questions today before, in a few years from now, you’re the one with the antiquated business model.