Seasonal fluctuations in demand can affect staffing, scheduling and cash flow. Sometimes these changes can imperil a business.
Businesses across industries may manage seasonality in different ways. Some try to diversify product lines, hire temporary help or simply close down during the slow season.
One of the most common and effective solutions is to offer seasonal pricing. That means charging different prices for products and services depending on whether it's high season or low season. The idea is to smooth demand by enticing customers with low prices during the slow period, while maximizing revenues with higher prices when demand is strong.
Seasonal Pricing in Action
Lawn care is a particularly seasonal business, especially in Northern climates. Weed Man, a Toronto-based franchiser of fertilization and weed control businesses, recommends its franchisees offer customers 10 percent discounts each fall in exchange for paying for a year's worth of service. In the spring the discount slides to 7 percent. Summertime customers get no discount.
"It allows the franchisee to get through their marketing season before we start applications and the dollars flow," says chief operating officer Jennifer Lemcke. She says up to 15 percent of customers take advantage of the fall discount and about that many more sign up in spring.
"By the time we set foot on the lawn, we're close to 30 percent of customers that will prepay for our services," Lemcke says. "That cash flow really allows franchisees to market."
[pullquote showtweet="false" username="Chris Pohl" alignment="center"]The money that can be made during the peak season can compensate for the low demand and sales during the slow season.
—Chris Pohl, vice president of client services, Digonex Technologies[/pullquote]
Weed Man is just one of many businesses that addresses seasonality with off-season discounts and seasonal pricing, says Paul Hunt, president of Toronto price consulting firm Pricing Solutions. "The place we always start is, 'When you're hitting the slower seasons, can you stimulate demand with lower prices?'" Hunt says.
Off-peak discounting does have its limitations. Demand for some offerings isn't affected as much by price cuts and seasonal pricing. For example, Hunt suggests that ice cream sellers in his home city are not likely to spur demand for their frozen products by offering them at lower prices during the Toronto winters.
Cutting prices during slow times may also train customers to wait until the end of the high season, when they can make purchase at lower prices. That just shifts demand from high season to low. This may reduce the bumpiness of the ride, but may not increase overall demand. Hunt also cautions that discounting during slow times can cheapen a brand's image, making it harder to sell at full price during the busy season.
Changing Seasons and Pricing Strategies
Along with (or instead of) using discounts to spur off-season demand, businesses may want to consider applying premium pricing schedules during peak demand, says Chris Pohl, vice president of client services for Digonex Technologies, an Indianapolis provider of dynamic-pricing services. "The money that can be made during the peak season can compensate for the low demand and sales during the slow season," Pohl says.
Before implementing any sort of seasonal pricing, businesses may want to study their customers and evaluate the likely effects. "The key to good pricing is to segment your market," Hunt explains. Knowing how many and which customers are likely to be influenced by price changes, and which buyers will continue their seasonal purchasing patterns regardless of price, may help you determine if seasonal pricing is right for you.
Pohl says careful examination of sales history may reveal less seasonal impact than a business owner thinks, and could suggest better alternatives to seasonal pricing. For instance, an operator of an outdoor attraction such as a zoo may assume high and low seasons will track summer break and the resumption of classes in the fall. But cutting prices during the school year might be less advantageous than a marketing campaign targeting classroom tours.
On the flip side, a business may have seasonal impacts that aren't obvious. Pohl says retailers often neglect the impact of having sufficient physical room to store out-of-season items. Warehouse storage adds costs. And devoting floor space to seasonally unpopular products means other items that may be in higher demand aren't displayed for customers to purchase.
After segmenting customers and analyzing sales patterns, businesses may want to carefully consider their margins. Even small price cuts can have negative effects on offerings with thin margins, Hunt notes, while fatter profit margins may give businesses more room for seasonal price cuts.
Large companies may undertake complex analyses to determine optimum seasonal pricing. Pohl advises smaller firms to be prepared to experiment with pricing to see how different customers are affected at different seasons.
And when it comes to demand-based pricing, seasons aren't the only category to consider, he adds. One-time or irregularly recurring events such as concerts, tournaments and conventions can also call for price modifications.
"That's the case with any product," Pohl says. "Finding the optimal price at any time so people feel like they got a value."
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