Online retail is a lot like the NCAA March Madness tournament. It starts out with a lot of competitors, upsets, and only a handful of the participants get discovered.
As a smaller online retailer, or a team in the tournament, you might lack a lot of the resources that make the giant top-seeded competitors victorious. That doesn’t mean you can’t keep up with them, though. In order to take the lead over a giant like Amazon, retailers have to pull an upset, and implementing a dynamic pricing strategy is a great way of doing so.
Get Your Head in the Game
When an open net presents itself, are you going to wait for the competition to catch up? Of course not, so when you’re the only seller with a certain product, move fast to maximize your margins. Approximately 39% of retailers don’t collect data quickly enough, so make the most out of an opportunity by increasing a product’s price when you’re the only one selling it. If you collect data too slowly, you can miss a shot and be unaware of the potential impact on your bottom line.
It’s always good to take a step back and look at the bigger picture. You might feel like you’re playing well, but the scoreboard might indicate you’re down by 10 points. Benchmark against the competition to understand how you measure up. Approximately 94% of online shoppers invest time to find the best price, and a dynamic pricing strategy can keep you informed of competitors’ prices. From there, you can understand how to reprice accordingly.
Take Shots, Get Rebounds
When using a dynamic pricing strategy, retailers have to play offense just as well as they play defense. Repricing based on the competition’s prices is extremely important, but it’s a good idea to make moves based on other factors as well. Basing your repricing solely on competitors’ prices can lead to a price war, and repricing solely on other external factors like supply and sales data can keep you out of the competitive loop.
Approximately 65% of online shoppers spend more than 15 minutes comparing products on CSEs. Use a dynamic pricing strategy to have a better price than your competitors, but one that still fits your brand guidelines. Don’t let your price throw off your brand equity. But at the same time, if there is a low supply of a certain item on these CSEs, raise the price a little bit to get the most out of a sale.
Rethink Your Plays
As with different basketball plays, trial and error is the name of the game with dynamic pricing. Which strategies worked well? Which ones didn’t? A/B testing leads to a 21% increase in revenue on average. Be sure to collect sales and revenue data to understand what works well for your bottom line and what doesn’t. And don’t just limit your testing for one category, do it for all of your practices. Doing so will eventually lead to a slam dunk.
Dynamic pricing can turn a zero into a hero. Big box retailers like Amazon have been doing it for years, and now it’s time for smaller retailers to step their game up. No one sees upsets coming, but everyone likes a good Cinderella story. With a dynamic pricing strategy, retailers of all sizes can keep up with the giants and pull upsets that would break anyone’s bracket.
Contributing Writer: Brian Smyth