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Demand Aggregation

What is the Business Model of eBay? It is a site where sellers quote their price and buyers come to buy what is being offered. In the process, the seller and the buyer both benefit and also the ratings given by both seller and buyer play an active role in determining the price point. This is called Demand Aggregation.

In today’s startup scenario, often founders are a little perplexed about the pricing point. There are numerous factors which go into identifying the price point of the offering. How do the airlines price their tickets? During weekdays, the prices are less and during weekends and holidays they automatically go up. Try booking a ticket for any festival time during the year, prices remain high. However, as the date of journey comes closer and if they are not able to sell the tickets, prices will continue to come down. In Europe for instance, it is the opposite. The nearer the departure date and time, the cheaper is the ticket. Airlines just want to sell and have a full flight rather than sticking to the price and flying with empty seats. After all, the success of an airline is based on the Passenger load capacity.

At Uber, during the peak hours, automatically it shows us that the price is 2 or more times higher than the regular price. The price goes up if the number of cabs available comes down. But the same times during weekend, prices don’t go up.

It is a wise business model to determine the price point. First, attract the consumer, make them use your offering and slowly increase the price. Having a huge database of consumers / potential consumers is what the makes the company attract the investors. That is the USP which many startups miss.

Thoughts?

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