Many business owners struggle with pricing. Should their first concern be covering costs or figuring out what the market will bear? How do they determine what the market will pay without raising prices high enough that some customers flee? And can they offer discounts without damaging their price brand?
There may be no easy or universal answers to these questions, but new thinking and new technology has made it possible for some, like the airline and hotel industries, to use what is known as dynamic pricing to vary prices according to demand and fill seats and rooms more efficiently. Now, more small businesses are finding ways to adapt their strategies.
You can find consultants that charge for results rather than by the hour, restaurants that charge what is essentially a ticket price that varies according to how busy the restaurant is, and even some businesses that ask customers to pay what they wish. And Uber, a Silicon Valley company founded four years ago, has a mobile app that connects a small army of black cars with people who need rides in 70 cities worldwide and employs "surge pricing." Uber, which takes 20 percent of all fares, charges more when demand is high and the supply of cars low.
"You get far more cars on the road and they stay out longer when surge pricing is in effect," said Travis Kalanick, a co-founder. You also get some cranky customers. In the last few months, the company has received an onslaught of complaints when the cost of a ride rose to as much as seven times the normal rate during a snowstorm and on New Year's Eve.
"One of the things we've learned," Mr. Kalanick said, "is that the more crisply you deliver the message to the customer and the more you set expectations ahead of time, the more you get to a place where there's no issue with it."
Uber's prices are controlled by an algorithm — technology that is increasingly available to even the smallest enterprises. Craig Clark, for example, sells more than 2,600 items — vintage china, bras, house numbers — on a variety of online marketplaces. Two years ago, he was collecting $2,000 a month in revenue from his sale of house numbers on Amazon.com.
"Six months into it, my sales went down all of the sudden," he said. "Amazon went out and got a wholesale account and started selling the numbers themselves. So you're not just competing against other sellers, you're also competing against Amazon." Mr. Clark had been laid off from his job as an analyst for a telecom company outside Philadelphia, so his online retail ventures had become his only source of income.