What is time based pricing?

What is time based pricing?

Time based pricing refers to a pricing strategy linking prices to a particular time. In contrast to value based pricing, the practice is directed toward determining the price of a service based on the period used by a client. Time based pricing is more appropriate for the hospitality industry. For instance, a client charged a price for staying a night at a hotel is the most apparent example of time based pricing.

In such a context, there is another crucial distinction between time based pricing and value based pricing. In the latter pricing strategy, dynamic pricing is more common. The prices fluctuate depending on the time clients book services in the system.

Time based pricing examples

The retail industry is the most common example of time based pricing. However, outside the retail industry, the pricing strategy can be linked to the connection between the pace of work and the cost of work. For example, the faster an employee works, the more paid a worker. Such dynamic pricing example shows how time is linked to cost in time based pricing.

Another example of time based pricing is parking meters. For instance, they can charge more during peak hours to encourage customer traffic. However, parking meters can charge less during weekends and after hours.

Finally, time based pricing is most commonly used in the following industries:

• Airline. Booking tickets in advance costs less.
• eCommerce. In the industry, prices heavily depend on the season and days of the week.
• Ride-hailing. The price changes depending on weather conditions, stemming from dynamic pricing principles.
• Bnb. Prices are correlated to holidays, events, and special days.

These examples illustrate the dynamic nature of time based pricing. While value based pricing focuses on offering value to clients, time based pricing emphasizes external factors.

Drawbacks of time based pricing

The pricing strategy focuses on a dynamic pricing approach and includes various factors to establish a proper price.

However, while time based pricing offers a convenient way of charging costs, there are particular drawbacks to the approach:

1. Clients won’t be willing to pay for extra work, even if such is required. Essentially, the faster you work, the less the client will pay you.
2. With time based pricing, employees can stall and work longer hours. Naturally, such an approach decreases work effectiveness and does not motivate people to self-improve.
3. The only way to increase revenue in a time-based pricing model is to increase the hourly rate. It often poses a challenge, especially because you need to enter an uneasy conversation with a client.

Considering these drawbacks is important when deciding in favor of the pricing strategy.

Conclusions

Time based pricing is based on dynamic pricing. In contrast to value based pricing, the approach favors time and different external conditions affecting it. Dynamic pricing can be tricky. When it comes to commercializing time, people are often not willing to work effectively, and clients are not willing to pay for good work requiring long hours. In such a case, value based pricing can serve as a substitute for time based pricing. It is a less tricky dynamic pricing strategy.