Explain, with examples, the idea of a variable pricing policy.
Variable pricing includes adjusting prices to increase demand in off-peak periods in the hope of stimulating demand and generating revenue. It is based upon the idea of marginal costing recognising that set costs also have to be covered in off-peak times and any contribution is acceptable as long as variable costs are covered. (Potential variable pricing could also contain charging a premium price during peak periods in order to discourage demand but this is not such a common practice).
Examples of variable pricing include:
- off peak rail travel
- matinee (afternoon) prices for movie theatres;
- out of holiday periods (off-season) rates for hotels;
- weekend rates for telephone services;
- mid-week rates for hotel bookings;