Seasonal demand shifts can potentially imperil a business by impacting staffing, scheduling, and cash flow. Businesses have various ways of managing these cyclical challenges, from diversifying product offerings to temporarily closing down for the off season.
But rather than market a different product or take a break altogether, some businesses choose to leverage seasonal pricing, a highly effective strategy to help stabilize demand and maximize revenue year-round.
What Is Seasonal Pricing?
Seasonal pricing is a pricing strategy in which the price of goods or services is adjusted based on the time of year or seasonal demand.
Rooted in the concept of supply and demand, seasonal pricing usually involves raising prices during peak seasons and lowering them during slow seasons. During the winter, for example, retailers might charge more for coats and boots before slashing prices at the end of the season to help clear out stock. Similarly, hotels in a beach town might lower room prices to pull customers in during the winter, but raise prices in the summer when business is bustling.
With a good seasonal pricing strategy, businesses can maximize profits by capitalizing on customers’ willingness to pay more during peak times and bringing in more business when demand is low. This flexibility helps smooth out cash flow to keep the lights on during quiet periods.
Seasonal Pricing in Action
Seasonal pricing models might be an obvious choice for the ever-fluctuating travel, tourism, hospitality, and retail industries, but those aren’t the only types of businesses that can leverage fluctuations in consumer demand.
Seasonal pricing is a pricing strategy in which the price of goods or services is adjusted based on the time of year or seasonal demand.
Take landscaping and lawn care, for instance. These tend to be seasonal businesses, especially in cooler climates. So how does a local business stabilize cash flow when lawns are covered in snow? One option is to offer customers a discount in the fall or winter in exchange for prepaying for a year’s worth of service – say 10%. In the spring, that prepayment discount might slide to 7%, while those hopping on board in the summer pay full price.
This seasonal pricing approach can help the business get through the slow season, when few contracts are rolling in and few dollars are flowing. Such discounts help lock in prepaid customers, giving the landscaping business a cash infusion to boost its marketing strategies and further stimulate demand.
However, the impact of seasonal pricing can vary depending on the nature of the offering. Certain products or services may not see a significant increase in demand, even with lowered prices during off-peak periods. For example, an ice cream shop in a similarly cold location might not spur demand for its frozen products by offering them at lower prices in the dead of winter.
Additionally, there's a potential downside of training customers to wait for lower prices during slow seasons. This could lead to a shift in demand from high season to low season, without necessarily increasing overall demand and potentially diminishing revenue.
How to Develop Your Seasonal Pricing Strategy
Creating a seasonal pricing strategy requires care and thought. The planning phase involves careful evaluation of specific market dynamics and historical data to help determine your business’ key seasons, as well as how best to balance base and seasonal rates.
Here’s a general outline for developing a seasonal pricing strategy.
5 Steps for Developing a Seasonal Pricing Strategy
Every business will devise a seasonal pricing strategy unique to its particular needs, but these five steps are a useful starting point for any company.
1. Know your customers. Review past sales and customer data to identify seasonal demands for your products or services. Look for recurring trends and fluctuations, such as what customers are likely to buy and when. It’s also smart to identify how many customers are likely to be influenced by price changes and how many will continue to make purchases regardless of price. This can help you determine whether seasonal pricing is right for your business in the first place.
2. Identify your business’ key seasons. Determine the seasons or specific time frames that have a significant impact on your business’ demand. Consider factors such as holidays, weather conditions, industry-specific events, and consumer behavior during different times of the year. Clearly define the peak season, off season, and shoulder season, as well as any “mini seasons,” such as a brief burst of activity due to a major local event, like a concert or rally.
3. Set your base rate. How low are you willing to go? Your base rate should allow your business to cover costs and make a profit during typical demand. Start by understanding all your business costs to get a sense of the lowest you can charge to break even. Then analyze competitor pricing. Consider the quality of their product or service compared with yours. This gives you an idea of what customers may be willing to pay. Finally, factor in the profit margin you want to maintain and add it to your break-even price.
4. Establish seasonal rates. Seasonal rates are generally higher or lower than your base rate and are implemented during high- or low-demand periods, respectively. Depending on your business model, seasonal rates might leverage tiered pricing, package deals, limited-time offers, or other discounts. You might simply raise prices during high-demand periods. Understanding customer behavior is key to setting a reasonable seasonal rate that helps increase revenue but still satisfies the customer. Excessively high seasonal pricing, for example, could deter customers and harm your brand’s reputation, while excessively low prices can cut into margins. It’s also wise to factor in any increased costs during peak periods, such as higher staff wages or increased supply costs.
5. Track and evaluate performance. Continuously monitor and track the performance of your seasonal pricing strategy. Evaluate the impact on sales, revenue, customer satisfaction, and market share. Don’t be afraid to make adjustments based on results and feedback received. It can also help to keep an eye on competitor price adjustments throughout the year so you can stay competitive and make more informed pricing decisions that align with market trends.
What Are the Benefits of Seasonal Pricing?
Effective seasonal pricing strategies ultimately help businesses adapt to seasonal demand patterns to optimize pricing and achieve long-term success. But seasonal pricing can also offer other benefits, such as:
- Maximized revenue: Seasonal pricing allows businesses to capitalize on customers’ willingness to pay more during high-demand seasons. Meanwhile, discounts allow businesses to boost revenue during otherwise slow periods.
- Balanced cash flow: Seasonal pricing can help businesses distribute customer demand more evenly, smoothing out cash flow.
- Increased competitive edge: Offering attractive pricing during specific seasons can attract customers away from competitors and boost market share.
- Widened customer base: Seasonal pricing can attract new customers who may be more price-sensitive or are seeking deals during specific seasons, potentially adding loyal customers over time.
- Greater flexibility: Seasonal pricing offers businesses the flexibility to adjust their pricing strategies according to market dynamics. This makes it easier to respond quickly to changing circumstances, seize opportunities for revenue growth, or identify ways to cut costs.
The Takeaway
Seasonal pricing is the practice of adjusting the price of goods and services according to seasonal demand. The idea is to attract customers with attractive pricing during low-demand periods and leverage high-demand periods to maximize revenue. But developing a seasonal strategy requires careful research, ongoing analysis, flexibility, and a deep understanding of your market and customers.
A version of this article was originally published on August 29, 2016.
Images: Getty
