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Dynamic Pricing: Ready for Takeoff

Dynamic pricing is close to approaching ‘buzzword’ status, which means that enough retailers are at least entertaining the thought. But what does dynamic pricing even mean? Pricing is self-explanatory, but could you define dynamic without using another buzzword? Simply but elegantly, Webster defines dynamic as ‘always active or changing.’

We could not put it any better. People often think of nightmare scenarios when they hearing about dynamic pricing, imagining software spinning out of control, changing prices every 30 seconds and befuddling customers. In reality, dynamic pricing is a more measured process adopted by some of the leading online retailers. Here’s the lowdown on the pricing of the FUTURE……

How it Works

At its core, the changes enacted by a dynamic pricing engine have the one goal of maximizing revenue, but through many different mechanisms. And these reasons are all very intuitive to any business owner. Want to increase sales? Then you know to lower your price. Do you have a strong market share? Then increase prices to milk a little more margin out of your customers. That’s not the groundbreaking insight you expect from a buzzword, but it is the foundation of dynamic pricing. So what value does automated pricing intelligence software provide retailers?

Benefits of Automation

With the thousands of competitors online, and the ease with which your customer could switch to any of their sites, knowing how your prices stack up with your competitors’ is necessary. Until we reach the singularity, humans can not monitor all competitor prices around the clock. If you think 24/7 monitoring for all of your products is overkill, consider that Amazon sold 426 goods per second during the last holiday season. With such volatile demand and supply, it is necessary to have automated programs find your best price.

Alternative Dynamic Pricing

However, dynamic pricing does not have to be all automated programs and rapid changes. There are a few dynamic strategies that you can plan to develop over a period of time.

  • Segmented Pricing: If you want to capture more market share, try adding some features to pursue a new price point. Changing the prices in these ways can help you snap up a demographic otherwise unattainable.
  • Peak Pricing: Anyone who has ever commuted on toll roads, traveled on the holidays or even attended an auction knows one truism: if more people want it, you will pay more. Raising the price when demand picks up is elementary economics and dynamic pricing’s focus.
  • Penetration Pricing: If you’re introducing a new product, deciding on a price can feel like a shot in the dark. With penetration pricing, you set a low price before gauging demand and then raise the price until you are comfortable with your profit/sales ratio.

Still not sure of dynamic pricing’s role and prevalence in retailing today? No need to fret; check out our full infographic below!

dynamic_pricing_infograph

Contributing Writer: Jack Symington

Min-Jee Hwang

Min-Jee is the former Director of Marketing at Wiser. She has extensive experience working with SaaS companies and holds a BA from Carnegie Mellon University and an MBA from NYU Stern.

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