The History Of Dynamic Charges Strategy Economics Essay

Dynamic rates is a adaptable pricing mechanism permitted at the free market environment. It is also known as third-degree price discrimination or time-based prices. In dynamic rates strategy, the distributor according by giving an answer to market fluctuations or large amounts of data obtained from customers, to know what product that market in present needs and desires. It is also regarding to difference customer choices to set the price and service. This is area of the supplier to acquire what economists call "consumer surplus" which is the difference between what the purchase price consumer is inclined to buy for something and the money they already have to pay. Economists research to the price the consumer is prepared to pay such as " expected price ", in case supplier could find out a way to know what specific consumer's expected price was for a goods, they able to charge the highest price that the consumer willing to pay for the products, and may take all of the consumer surplus.

Amazon has incurred difference prices to difference customer that they willing to pay on the product and also the value they recognized. So that, Amazon can maximizes benefit from consumer surplus. But this pricing strategy can only just help Amazon to gain short run earnings as there are two constraints in this case. Amazon applies this strategy at 2000 to sell Dvd disks, its version of the practice was a good deal more complicated than a peak-pricing guideline for tolls. It used its software to analyze a customer's earlier purchase history, host to property, and other factors to modify price to capability to pay, when new consumer at Amazon buy one DVDs the price will cheaper than old consumer, because Amazon will given old consumer price discrimination, but it only help Amazon to increase profit a month and failed in the end. One of the key reason, DVDs is a standard good which is flexible demand and can fall in quantity when price increasing. Second of the main reason Amazon is not the monopoly market structural therefore the strategy of third-degree price discrimination cannot success to apply, so that, Amazon cannot obstacles other suppliers to entry market, it simply a part DVDs company in the market and competitive with other company, when consumers after buying the DVDs realize they price was difference compare to other consumers, their will minimize purchase in Amazon and shift to other suppliers to found replacement.

Value charges strategy

Value prices is defined by offering product at an acceptable and fair price which makes sense to the purchasing customer and understand your customers would like, needs, key issues and value individuals in much higher depth. This strategy is standard used where in fact the value to the client is many times the price of producing the goods or service. The goal of the strategy is to avoid placing prices that are either too high for customers or less than they would be happy to pay if they knew what kind of benefits they could get by using a product.

Amazon apply value rates strategy is prepared to get the long haul market goals compare to the other competition utilize this strategy just focus in the brief run market goals, by the end obtain temporary revenue and failed in future. Amazon has runs on the form of value prices strategy known as every day low costing and also contains offering free delivery services to consumers enticed and encourage their purchase more goods in their company, because nowadays provider no unique in the market and online customers have finally become accustomed to searching all the product to found the best price they willing to pay. Actually, Amazon CFO Tom Szkutak states outright that "Amazon purpose remains offering low prices every day and making use of them broadly across our whole product range rather than discounting a little variety of products for a limited time. Matching to low prices every day strategy except demand of good deal product increase, the sale of other products also will increase, because when shoppers purchase in a few place will over view the shop products to buy they needs and wishes, so that whenever demand of products increase will help Amazon to maximize the profit. It really is flexible of demand when the price going down, the number demand of goods increase further.

Collin Fitzsimmons. (n. d. ). What Is Dynamic Charges? Retrieved from

http://www. ehow. com/about_5255769_dynamic-pricing. html#ixzz2O5W7hxBv

Christopher Faille. (n. d. ). Which kind of Dynamic Pricing Will Amazon Use? Retrieved


http://smallbusiness. chron. com/type-dynamic-pricing-amazon-use-27704. html

Craig Stedman. (2000). Value-Based Rates. Retrieved from

http://www. computerworld. com/s/article/42848/Value_Based_Pricing

Rachel B. (2005). Team Post #1: Amazon. com's Costing Strategy. Retrieved from

http://rachelbarrett. blogspot. com/2005/06/team-post-1-amazoncoms-

pricing. html

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