MakeMyTrip Dynamic Pricing

About the company:

MakeMyTrip is an Indian online travel company founded in 2000. Headquartered in Gurugram, Haryana, the company provides online travel services including flight tickets, domestic and international holiday packages, hotel reservations, rail, and bus tickets. With over 47% market share, MakeMyTrip is India’s first and biggest travel company. In fact, one in every four passengers at an airport is their customer. As of 31 March 2018, they have 7 million monthly active users with14 company-owned travel stores in 14 cities, over 30 franchisee-owned travel stores in 28 cities, and counters in four major airports in India. MakeMyTrip has offices in New York, Singapore, Kuala Lumpur, Phuket, Bangkok, and Dubai.

Dynamic Pricing for a dynamic market:

A well-designed ML algorithm can learn and make price recommendations in real-time. Dynamic pricing is an approach now even small retailers and e-commerce players can use to compete in the retail market. This allows retailers to set product prices based on supply and demand. ML-powered software gets information from data to throw up dynamic pricing solutions. But before that, the retailer needs to know his customers and what data is incoming.

How to develop a general dynamic pricing model:

The most important aspect that is to consider is the level of granularity you are aiming for. For example, are you looking at a single customer level or an entire segment? Another crucial factor is defining strategic goals that align with business goals. Profit maximizing is obvious, right? But you could also choose goals for getting new customers or satisfying old customers’ satisfaction. The ML-based dynamic pricing model can then be developed once the answers to the above points come in. The model will predict whether someone will make a purchase at a price best optimized at that moment in time. The models can be used either using the Generalized Linear Models (GLMs), or the Deep Learning methods.

1. Dynamic pricing based on groups:

Customer segmentation is the practice of dividing customers into groups based on similarities in specific marketing characteristics. It can be as simple as a split A/B test or as complex as predicting a higher willingness to pay based on their location, demographic information, age, family size, etc.

Customer segmentation at MakeMyTrip takes into account the fact that every customer is unique, and that their prices would be better served if they targeted specific, smaller groups that consumers would find relevant and would ultimately lead to a purchase. In addition, the company hopes to gain a deeper understanding of their customer’s preferences and needs with the idea of discovering what price segment each group finds most valuable and tailoring discounts and coupons to those groups more specifically.

The company segmented users into different buckets in order to analyze what they could do differently for different cohorts of users and how they could build a more relevant experience for them. Each of the users is dissected into the following categories:

• When a user has not historically searched with us
• When a user has searched with us before
• Searched for a flight
• Searched for a hotel
• Searched for a holiday destination
• Searched for more than one i.e. flights and hotels both, hotels and holidays etc.
• When a user has searched and booked with us before and is coming back again
• When a user has an upcoming booking
• If the booking was on the day of travel
• When a user has completed a trip with us

2. Dynamic pricing based on time:

At its most basic, you’ll see it in a lot of industries — at the end of the month, prices are lower since salespeople are pushing for quotas. Booking your holidays during the festive season usually results in a lower price. Time-based pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands.

MakeMyTrip shows the right information to the user at the right time and with relevant offers in order to make the user experience seamless and immensely relevant. Be it a leisure trip or a business trip, most of you would agree that booking a trip requires a lot of planning. Travel preferences and choices will vary according to where, with whom, and under what circumstances one is travelling.

3. Price Elasticity of Demand:

Price Elasticity of Demand(PED), 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. Generally speaking, price elasticity is determined by factors such as the availability of substitutes; the proportion of the consumer’s budget that must be allocated to purchasing the item; the degree of necessity; and brand loyalty.
While historical data can, in theory, give an accurate estimate of consumers’ price elasticity, the predictive ability of such estimate is often weak, and it requires more data points than most firms have available to obtain a statistically valid result. However, to increase the level of sophistication, it can be relevant to include an analysis of patterns in price elasticity determinants, to which heuristics and qualitative interpretation can be applied.

For MakeMyTrip, it is crucial to know how high the elasticity of the demand is, in which periods and how the price willingness of the customers behaves depending on it. In simple terms, this means: “How strongly do my potential guests react to price changes?” Based on that, a well-founded decision can be made about the room price for a specific day/period to exploit the sales potential as much as possible. If the price elasticity is ignored, the hotel may be empty if the price is too high and full if the price is too low, but the rooms will be sold at far too low a price.

Benefits of Dynamic Pricing Model:

1. It can be used as a way to boost sales.

2. It can be used to maximize profits

3. It can create higher levels of demand