Dynamic pricing is not as new as you may think. In fact, dynamic pricing was the sole pricing technique until the mid-1800’s, though the more colloquial term for it is ‘haggling’. Back then, if you caught the shop owner in a bad mood, or if he didn’t know your name, you had to prepare to pay more. If he was having a good day, or you were a frequent customer, you became eligible for a nice discount.
Though haggling has gone out of fashion as a default pricing strategy, dynamic pricing is slowly making a comeback in many different forms. Unfortunately, not all have been too successful. Coca-Cola implemented dynamic pricing in vending machines by raising prices in congruence with rising temperatures, angering anyone with a thirst that needed to be quenched. Similarly, Uber’s surge pricing program can ruin your night out, as anyone who accidentally summoned a car late at night will tell you.
Dynamic pricing can be tricky to roll out, as it is difficult to project how customers will react. More often than not, success is reliant on the company’s ability to integrate a style of dynamic pricing that complements its broader business goals. Fortunately for the future of dynamic pricing, there are a couple of companies that have found that perfect marriage, laying out a gameplan for those who also want to effectively include dynamic pricing in their business strategy.
No more than a few years ago, it looked as though online retailing would run Best Buy completely out of business. At the same time, “showrooming” entered the public lexicon. Coincidence? I think not. Best Buy had to turn the company around quick, as 80% of online information searches are for electronics, making them the item most likely to be showroomed by consumers. While pricing was one of the issues addressed, it was only a byproduct of the larger goal laid out by the executives: to turn Best Buy into the ultimate technology showroom. Now, I know what you’re thinking–Best Buy executives either hit happy hour a little too early that day or they have no idea what a showroom is because that sounds like the easiest way to never pull an in-store sale again. But it was a smart multi-stage plan.
It started with improving the customer experience in the stores. By emphasizing staff training to ensure only the most tech-savvy employees were present, Best Buy impressed customers with knowledgeable, unparalleled customer service. Normally, this is where customers would thank them for their service and then open up their Amazon app. Luckily, dynamic pricing came to the rescue!
With dynamic pricing providing them an even playing field, Best Buy confidently compares their prices to those of online stores. While they may have not always offered the lowest price, this strategy has some great benefits. For starters, the transparency when dealing with competitors inspires trust in the customer. In addition, customers could justify any reasonable premium on Best Buy’s offerings in two ways; one is the instant gratification of walking home with the product in hand. The other would be the expert service provided by the trusty blue shirt representative. This approaching holiday season, Best Buy continues this flexible pricing strategy and even plans to keep up with the most questionable of them, matching Amazon to keep them off their phones and in the store.
Whatever the convincing reason for the premium is, shoppers are on board with the strategy. Since the beginning of the 2012 holiday season, Best Buy’s stock price has more than tripled. While smart managerial positioning brought Best Buy back to life, the company’s use of dynamic pricing was central in its revival.
Multi-channel retailers aren’t sitting their brick and mortar locations on the sideline and letting dynamic pricing roll past them. Instead, they are finding ways to bring the best of physical and digital worlds like whoever invented the vanilla-chocolate swirl cone. Kate Spade has been using dynamic pricing online, but recently rolled out dynamic pricing capabilities in its Tokyo location.
Dynamic pricing is here to stay, and in many different forms. Just to be ahead of the curve, the San Francisco municipal government has even started dynamically pricing their parking spaces. The only issue facing retailers now is how to use dynamic pricing to best achieve their goals. Whether you want to maintain a price premium, fight for sales, or mesh the physical and digital, dynamic pricing is a tool that can help; you just have to know how it fits your existing strategies.
How could dynamic pricing help your business?
Contributing Writer: Jack Symmington