New features to increase sales at Flipkart

In spite of high popularity of COD (Cash on delivery), E-retailers prefer online payment due to its profitability. To improve online payment, Flipkart has come up with Payzippy (the payment gateway service).

With Payzippy, users can store their card info only once and use it ofr future payments. The time taken to make an online payment has reduced by 50%. Flipkart provides this service across the merchant sites including MakeMyTrip, LensKart, etc.

            After Amazon, Flipkart has also come up with next day guaranteed delivery in selected cities in December 2013. For this, they would have to incur high cost to streamline their supply chain. They expect 5-15% of their customers to use this service. The service would be available only with WS retailer and not with their marketplace platform.

Dynamic Pricing

Dynamic pricing – Current realities

Every person is willing to pay a specific price for a product or service. Some people can pay high price while others can pay low price. So, instead of going for fixed price, why not go for dynamic price through which we can ensure that no money is left on table and more customers can be served? The idea is to change the price based on time of the day, demand and season. Through dynamic pricing, the cost of airline ticket to electronics changes from week to week.

Advantages

Dynamic pricing not only helps the companies but also consumers. Companies in hospitality industry can raise their prices in peak season and keep minimum price in off season. Retailers can raise the price of product in high demand and lower price for low demand products. Consumer, who could not afford a fixed price airline ticket, can travel via airline through dynamic pricing. The peak electricity load can be reduced by charging more during peak hours and low during other times. The electricity utility corporation would need less capacity to cater to its consumers which would drive down their cost and consumers can reduce their bills.

Limitations

In spite of many advantages of dynamic pricing, it is easier said than done. There are many factors which should be considered before going ahead with dynamic pricing. One of the factors is a signal sent to consumers. By charging high price for in demand products, we are telling consumers that the products which are discounted are unwanted. It would be a self-fulfilling prophecy and the demand for cheap/discounted product would go down.

Another factor would be “menu costs”. It is difficult for managers keep track of demand, adjust prices and post those prices. If the manager was running a hotel, he would have to revise and reprint the menu on weekly basis which would raise the cost. Industries like airline and movie don’t have menus, so dynamic pricing could be easily implemented there.

The third factor would be consumer perception. For example, Amazon tested selling DVD’s at different price based on consumer’s browser. Consumers did not like it and Amazon had to refund the consumers who had paid more. Coca-cola tried dynamic pricing based on surrounding temperature. The idea was to charge more in hot weather due to high demand and low in other case. The idea did not resonate well and was abandoned. Some companies learnt from this experience and have developed better strategies. Instead of offering same product for different prices, companies like Orbitz are serving different products for different consumer based on their operating system. By calling it “personalized experience”, they have been able to manage consumer perception.

The next factor is based on behavioral economics. Consumers place a lot of value on predictability. They are guided by “loss aversion”. If a product is cheaper than expected, one would be a little happy but if it is costlier than expected, one would be very disappointed. This gives firms some incentive to keep the prices stable.

Effective Application

Dynamic pricing can’t be implemented in any industry and it should be implemented effectively. The customers should be willing to pay for the additional service/feature. We should be able to locate these consumers. Multiplexes locate them based on time of the day. Cost of implementing dynamic pricing like menu cost or software cost should not exceed the increased expected revenue from dynamic pricing. Apart from airline industry, major league baseball has successfully implemented dynamic pricing of ticket. One of the team was able to raise the ticket revenue by $500,000.

Conclusion

Dynamic Pricing strategy is very helpful in raising revenue, profits and getting the highest value for the product. It is being adopted at a quick space in various industries. However, effective execution of this strategy is critical in long term success of the firm. Various behavioral and cost factors should be studied before implementation. Dynamic pricing offers lot of opportunities but one has to implement it effectively and at a right place to get the best out of it.

References

http://www.artsjournal.com/worth/2013/02/why-is-dynamic-pricing-so-rarely-used/

http://www.iprospect.com/blog/featured/dynamic-pricing-an-old-practice-is-making-a-comeback-online.html

http://www.csmonitor.com/Business/Saving-Money/2013/1104/Everything-you-need-to-know-about-dynamic-pricing

About the Author

Sujay Deo Shashank is a first year PGDM student. He can be reached at deos2015@email.iimcal.ac.in

Did you like the blog? Please feel free to leave your comments below and do not forget to follow us. Watch out this space for more interesting blogs every week.

Bacteria and lizards too can play Rock-paper-scissors!

Game Theory provides the foundation for understanding competition in industries with a few producers. Simply speaking, it is a study of strategic decision making. There are 2 types of Games: 1 stage or 2 stage. In a 1 stage game, each participant makes all of his choices before observing any choice by another participant. A very common example of a 1 stage game is ‘Rock-paper-scissors’.

Overview

Rock-paper-scissors is a hand game usually played by two people. It is a game based on random selection like throwing a dice or flipping a coin where the two participants need to make one of the three hand gestures randomly – rock, paper and scissors. Rock represented by clenched fist; paper represented by an  open hand, fingers touching and the third gesture, scissors, represented by two fingers extended and separated. The objective is to select a gesture which defeats that of the opponent. The rules of the game are- The "rock" beats scissors, the "scissors" beat paper and the "paper" beats rock; if both players throw the same shape, the game is tied.

We are not alone to play Rock-Paper-Scissor !

And we thought only kids play it right! Well the amazing thing is nature has evolved its own strategies to make use of this game. Certain species in nature use this game to allow each of the genetic variants to co-exist with equal advantage. Two such species are known to us- Common side-blotched lizard and certain bacterial species but nature may have many such species which use this strategy for survival which are yet unknown to man.

Common side-blotched lizards have evolved a very interesting adaptation to allow all of its genetic variants/morphs to equally survive. And how does it do that? Well by using our very own rock-paper-scissors game in mating! Male side-blotched lizards exhibit distinct throat colorations, and can be divided into three different categories – orange, blue, yellow. Orange-throated males are very aggressive with lots of females in a big territory. Blue-throated males are less aggressive and guard a single mate in a small territory. The yellow-throated males are particularly clever – they can mimic side-blotched females. Thus by feigning as a female they can sneak into others territories, particularly orange-throated males, and steal their mates. Similar to rock-paper-scissor games, orange beats blue, the orange-throated males being more aggressive. Blue beats yellow as it guards only one female, they are better at catching yellow-throated sneaks. Yellow beats orange, the yellow males can easily mimic as a female and enter into the orange-throated males’ territory and steal mates. Just as in the rock-paper-scissors game, each sexual strategy has advantages over one competitor and a vulnerability to another, so that all strategies have a reasonable chance of prevailing.

The same survival strategy is also used in certain bacterial species too. They exhibit a rock-paper-scissors strategy when they engage in antibiotic production which again allows different genetic variants to co-exist. This is how the rock-paper-scissors game strategy is used - antibiotic-producers defeat antibiotic-sensitives; antibiotic-resisters multiply and withstand and out-compete the antibiotic-producers, letting antibiotic-sensitives multiply and out-compete others; until antibiotic-producers multiply again. Thus the cycle continues and each of the genetic variants has equal opportunities at survival.

With these examples, we can see that nature has up its sleeve its very own rock-paper-scissor game to allow for the co-existence of various genetic variants.

Conclusion

                There have been programming competitions for algorithms that play rock-paper-scissors. Algorithms based on Markov Chains have been developed for its strategy. Also there has been a World Body for this game which standardizes the set of rules for international play, called World Rock Paper Scissors Society. And yes, there are international tournaments for this game, which apart from attracting widespread media attention and participants, have also been broadcast live on TV. And we thought it was a kid’s game.

References

Alonzo, S.H.; Barry Sinervo (2001). "Mate choice games, context-dependent good genes, and genetic cycles in the side-blotched lizard, Uta stansburiana". Behavioral Ecology and Sociobiology 49 (2-3): 176–186

About the Author

Sayantan Das is a PGDM student of 2013-2015 batch. He can be reached at sayantand2015@email.iimcal.ac.in

Did you like the blog? Please feel free to leave your comments below and do not forget to follow us. Watch out this space for more interesting blogs every week.