For instance, demand for a flight from Boston to LA. There's actually nine non-stops a day. So what happens is if I'm an airline and I have low capacity,. I can just lower my price and steal customers from other flights. That's how dynamic pricing typically works for sort of hotels and airlines. But you have to remember for rock concerts or sports teams, you're not stealing demand from other places. Generally there's sort of a fixed demand. And what you try and do is get the right price given the current demand structure.
With rapidly changing markets and emerging technologies, setting the right price is harder than ever. But pricing strategy consultant Rafi Mohammed tells HBR IdeaCast host Sarah Green Carmichael that it’s possible to make better decisions about pricing if you understand how pricing and demand interact in your business and you have good market research to guide you.