Dynamic Pricing in Travel Industry

The Travel industry is now leveraging the benefits of large datasets and coming up with new features frequently, thus easing the tedious process of planning trips and worry about the increasing costs. With the use of large datasets ML/AI is doing wonders in travel industry. Gone are the days when we need to plan the journey well in advance and contact people around for their experiences and best places. With the advent of latest apps/tools one can easily plan their trips few days before without much difference in cost, if applied before.

Machine Learning in Travel Industry

One of the leading companies in Travel industry is MakeMyTrip Limited. Established in 2000, MakeMyTrip has positioned itself as one of the leading companies, providing great offers, competitive airfares, exclusive discounts, and a seamless online booking experience to many of its customers. The experience of booking your flight tickets, hotel stay, and holiday package through our desktop site or mobile app can be done with complete ease and no hassles at all.

Recently, MakeMyTrip Limited has Announced Partnership with Leading AI-Enabled Travel Booking App Hopper to make better travel decisions and save money while booking flights by leveraging Hopper’s Price Freeze technology. This technology will power MakeMyTrip’s price lock feature and enable customers to lock in flight fares for up to seven days while they are in the process of firming up their travel plans. Also, the dynamic pricing system of MakeMyTrip has attracted the customers a lot.

Importance of Dynamic Pricing

Dynamic pricing system is a tool used for real time pricing suggestion. This is now becoming popular and is now used by most of the people ranging from small retailer to big e-commerce players.

It has several advantages, firstly, there is a great chance to increase sales with dynamic pricing. You can adjust to the ever-changing market and react faster to current demands. For example, there might be periods when lower prices can trigger sales and increase revenues. On the other hand, there might be periods of high demand when it is better to raise prices, catch the sales opportunities and maximize profits.

Secondly, it is difficult to set certain prices based on dynamic parameters. Nowadays, many complex products are on the market, so such situations are often encountered. Organizations use dynamic pricing strategies to manage a range of pricing alternatives and adjust the prices according to the relative value on the market.

Implementation of AI/ML for Dynamic Pricing

Once we know the benefits of dynamic pricing, our focus move on to building such models which can help achieve this task.

1. Dynamic pricing based on groups

Customer segmentation is the practice of dividing the customers base into groups of individuals that are similar in specific ways relevant to marketing. This can be as simple as a split A/B test or more sophisticated by predicting a higher willingness to pay based on machine type, location, demographic information, etc.

2. Dynamic pricing based on time

Based on time, the prices vary and we find thar at the end of the month prices are lower as salespeople push for quotas. We see people wait for the festive season to book their holidays as the price usually goes down. Time-based pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands.

3. Price Elasticity of Demand

It describes how the quantity demanded by consumers will respond to a change in price. Dynamic pricing models utilize vast amounts of historical data on demand and prices to determine how the nature of the relationship between these two variables.

Advantages of Dynamic Pricing

The main advantages of dynamic pricing are:

1. Dynamic pricing is a way to reflect the changes and increase profits according to the number of people interested in certain products.
2. We can use dynamic pricing to boost either profits or sales. Lower prices can trigger people to buy more and increase demand.
3. We can calculate the demand curve for clients and discover the minimum and maximum price they are ready to pay for a particular product.

Conclusion:

Dynamic pricing is actually providing freedom to the users and stake holders to play with the situation and make best out of it. It is win-win situation for both until it keeps transparency.

References:

1. https://www.makemytrip.com/blog/tamil/node/21852

2. Mobile Application Analytics — MakeMyTrip | by Srijan Rana | MakeMyTrip-Engineering | Medium

3. Customer Story: MakeMyTrip — Databricks

4. Dynamic Pricing Guide: How to Implement a Dynamic Pricing Strategy (priceintelligently.com)