What is Time-Based Pricing?

If you are looking for ways to increase your profit margin, raising prices seems to be an obvious solution. However, it should be done carefully so as not to lose customers. Time-based pricing is a must for sellers who want to build an optimal strategy – this approach allows maximizing profit by lowering and raising prices at the right moments. Find out how this pricing method works and discover how it can be implemented in online retail.

Initially, this pricing strategy was applied to the relationship between the rate of work and the cost of work: for instance, employees are paid more when they work faster. In the retail industry, time-based pricing has a different meaning. This approach implies correcting prices over a certain period of time. Most likely, you’ve encountered it when shopping for clothes and seasonal products.

Parking meters are a good example of a time-based pricing model. For instance, parking lot owners can raise prices during the busiest times, when there are many customers. At the same time, they can charge less on the weekends and after work.

The following sectors employ time-based pricing most frequently:

• Airlines. We all know that it is a better deal to buy tickets in advance, while same-day or next-day tickets are very costly.
• E-commerce. Prices in the industry are greatly influenced by the time of year and the day of the week – they mainly depend on seasons.
• Ride-hailing. In this industry, prices vary according to the weather and the level of demand.
• Holidays, special occasions, and events affect prices – sellers charge more when people rush to buy presents, decorations and so on.

These examples highlight the flexible nature of time-based pricing. This approach stresses external factors, whereas value-based pricing concentrates on providing value to customers.

While time-based pricing is often discussed in the context of employee salary and business economics, this approach is also used in the retail industry. Here is how it can be useful.

Price reductions are occasionally necessary and can frequently stimulate sales to meet revenue targets. This dynamic strategy makes it possible to adjust prices in response to competitor data, internal stock levels, and market trends. As a result, it is possible to maintain your market share and enjoy increased profit. So why not use it?

Thanks to dynamic pricing, brands and merchants can apply pricing rules to different categories of customers dynamically, automatically, and in bulk. For a dynamic pricing example, consider airline ticket pricing, where prices change based on seasonality, demand, and time until departure.

Dynamic pricing is not only about price reductions – it implies price increases too. Sometimes, the market itself dictates that merchants should raise prices, and you can definitely do that when competitors’ rates are much higher.

Despite the above-mentioned advantages, time-based pricing can have a negative impact on customers’ purchasing decisions. Here are the major risks that you should consider and try to avoid when leveraging this approach.

Real-time pricing may have the unfavorable effect of upsetting or even infuriating customers who find out they were the victim of price discrimination. For instance, if airline passengers compare the cost of their tickets, one passenger may learn that he paid twice as much as another. People could feel tricked and frustrated in such a case.

Time-based pricing can harm a company's brand loyalty if it makes customers irritated or furious. When customers know what prices to expect, they are more likely to buy from a particular seller again and again rather than shopping around and looking for better prices elsewhere. Not only can it hurt sales, but it may also result in negative reviews.

When consumers are not devoted to a specific brand, they will go wherever they can find the best discounts. Online buyers can rapidly compare costs for the same goods and services at several vendors. Using time-based pricing strategies, a business can provoke rivals to cut their prices in an effort to introduce better deals. Reduction of product prices and lower profit margins that can result from more competition is good for consumers, but bad for businesses.

Since time-based pricing has existed since man first created clocks, it has been so established that neither businesses nor customers can imagine doing things any other way. It seems to be natural that customers are ready to pay more during a high season when they need a product or service here and now.

Similarly, value-based pricing has been around for a while, but under a different name. Value-based pricing is used whenever someone provided a service that was based solely on perceived value, regardless of season or time. In comparison with time-based pricing, the value-based approach makes it possible to adjust prices less often if demand for a product is stable. In this case, quality and value serve as the major driver of price.

As part of a dynamic pricing strategy, the time-based method allows reaping maximum profit out of your stock. This approach takes into account demand and different market conditions, which makes it more flexible and efficient. However, it can be tricky: when buyers discover that they paid more than others, they may feel tricked and lose loyalty to a brand.

If you run an online store, time-based pricing can be a great way to increase your earnings by adjusting prices in a timely manner. No need to spend hours doing that – just start using dynamic pricing software by Priceva. It will keep tabs on market trends and help you keep your prices competitive, no matter how high the demand is.

Businesses often use time-based pricing to encourage customers to make quick purchases (for example, by introducing limited-time offers). Also, time-based pricing is used when buyers pay extra for one-day delivery, when prices surge during rush hours, or when airline tickets cost less only if they are bought in advance.

You can adjust prices according to seasons and customer demand: charge more when people buy more, and charge less when there’s customer outflow. If your assortment is large or you run several retail stores, consider automating price updates by using pricing software.

You can use pricing software that will update prices automatically in all your online stores. Such a solution will help you automate price analysis on the market and provide suggestions based on real-time data.