Pricenow in the St. Gallen Business Review of the University of St. Gallen

June 10, 2020
In the current issue of the St. Gallen Business Review by the University of St. Gallen and ESPRIT St. Gallen, we provide an insight into our personal start-up story. A look behind the scenes of Pricenow tells about our experiences with dynamic pricing strategies and current industry trends.

Dynamic Pricing – Dynamic Start-Up

Dynamic pricing is on the rise - more and more industries are adopting dynamic pricing strategies and benefiting from reduced operational risk, increased flexibility in the face of an ever-changing market and significant revenue increases. Pricenow, a leading young dynamic pricing company, explains how they have initiated a drastic change in the European mountain lift industry.

PWC's latest Sales Radar on Dynamic Pricing (2019) reveals that four out of ten companies adjust the prices of their products and services at least once a week - although they often lack the digital support to do so. This is because only a few companies calculate prices and offers automatically. Price calculation is mainly done with individual tools and less dynamic spreadsheets, which cost a lot of resources. Automated pricing, on the other hand, has a positive impact on the efficiency of the back office and the sales department. More and more companies from different sectors are showing interest in a dynamic pricing strategy: companies from the transport, leisure or hotel industry and even media advertising agencies are exploring dynamic pricing. This has also been noticed by Pricenow, a dynamic start-up offering holistic price optimization for companies.

How all started

While Dynamic Pricing has been established in various industries for many years, the mountain railway industry is now also undergoing change. What was unthinkable in the European Alps less than 5 years ago is now growing rapidly. Since the last winter season, eight ski resorts in Switzerland have introduced a dynamic pricing model - now, just one season later, more than 70% of the largest Swiss ski resorts have switched to dynamic pricing.

The idea for a dynamic pricing model in the mountain lift industry matured over the past few years within Pricenow's founding team. "As students, we couldn't understand why we should pay the same price for a ski ticket when the slopes were almost empty in the off-season or due to mixed weather conditions. An early bird ticket had no real attractive price incentive to commit early and bear the weather risk. In short, for us, the fixed prices at the box office did not reflect the ever-changing conditions and therefore did not match our willingness to pay," says Jonas Meuli, co-founder of Pricenow. "And at the same time, we felt the situation couldn't be optimal for the mountain cable cars either. They were faced with high fixed costs for daily operations combined with strong customer fluctuations."

During their last semester at the University of St. Gallen, the Pricenow founding team therefore decided to lay the foundation for the young company - and turn a mere idea into reality. Today, Pricenow is one of the leading providers in the field of dynamic pricing for ski resorts and other tourism enterprises. The company offers an integrated approach to dynamic pricing, data analysis and e-commerce on a fully automated and cloud-based software solution.

Mountain cable cars and dynamic pricing

Almost simultaneously with the founding idea, the Swiss mountain railway market came under pressure due to the unfavorable exchange rate of the Swiss franc and newly introduced controversial discount pricing strategies for annual ski passes. In addition, many ski resorts faced the challenge of convincingly encouraging their customers to use online channels for ticket purchases, which in turn enable companies to collect valuable customer data. These were ideal starting conditions for establishing dynamic pricing in a promising way.

Dynamic prices for ski resorts are determined by a variety of changing, external factors. For example, the expected demand, the elasticity of demand or the time of booking play a decisive role in the creation of an optimal price model. The complex relationships between the individual factors are finally mapped in an algorithm. Every day, Pricenow's Price Engine calculates more than 80,000 price adjustments fully automatically and feeds them directly into the desired sales channels. Moreover, holistic pricing decisions are only possible with state-of-the-art data analysis. That's why Pricenow invests a lot of time in creating accurate demand forecasts and determining price elasticities, thus supporting its customers in analyzing their data. In addition, the company uses detailed on-site market research at the ski resort to gain a comprehensive understanding of the resort's customers and their willingness to pay. Thanks to the latest technologies and the use of machine learning models, the pricing engine can take into account complex and multidimensional relationships between price and purchase decision and continuously optimize prices, which sustainably increases both sales and profits. A recent analysis of the last peak Christmas season shows that benchmark ski resorts in Graubünden saw their revenue increase by 2.6% to 11%, while Pricenow's partner ski resorts with holistic Dynamic Pricing in the same region of Switzerland saw their revenue increase by around 17%. This is an outperformance of 54% to 653% compared to the benchmark [1].

Challenges as a young company

Like any young company, Pricenow faces a number of challenges along its growth path. "We know that new things can often initially cause anxiety and a certain amount of defensiveness. Innovative ideas are sometimes at odds with long-standing traditions. Dynamic pricing offers great potential for our customers, but of course it means big changes for a company as a first step," explains Judith Noerpel-Schneider, co-founder of Pricenow. That is why Pricenow attaches great importance to setting up a detailed implementation process that brings relevant key players from various departments such as finance, sales and marketing on board.

The ski resort industry is undergoing a strong digitalization process, which is also giving way to existing competitors who are trying to profit from the rapidly changing field of dynamic pricing. "This forces us to constantly question our services and offerings. Are we creating the value we want for our customers? Can we continue to improve? And how can we standardize specific customer solutions at a certain level to achieve long-term economies of scale?" says Reto Trachsel, co-founder and CEO of Pricenow.

Pricenow's next goal is to expand into international markets within the tourism and mountain railway industry. Dynamic pricing is also becoming more and more of an issue in French, Austrian or Italian ski resorts. And of course, Pricenow is already planning the next big step: expanding the company into a second industry. The Pricing Engine has been developed and configured to calculate an optimal price for any type of product or service. "Pricing - what we love to do" embodies Pricenow's working philosophy every day. The ever-growing team behind Pricenow is not only passionate about their service activities, but also for the industries and products they are passionate about pricing. Together, they are dynamic about reaching their next milestones.

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[1] Bergbahnen Graubünden Monitor (Dezember 2019)

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