Price Management

Dynamic Pricing Strategy Benefits All Online Retailers Need to Know

Dynamic pricing in online retail has come a long way as a pricing strategy. It is defined as a strategy that allows retailers to respond in real-time to supply and demand levers. It provides countless benefits, such as enabling retailers to beat a competitor, save dwindling inventory, or make the most out of a trendy item that is flying off warehouse shelves.

With that said, retailers must approach the switch to dynamic prices with an understanding of its history and how it fits in with existing pricing strategies in order to fully reap the benefits.

Where Did Dynamic Pricing Originate? 

Dynamic pricing ties back to a pricing model that American Airlines pioneered in the 1980s. This data-driven strategy enabled the airline to maximize revenue when seats were selling quickly and improve demand with lower prices. In the past two decades, dynamic pricing has become popular across industries because it enables companies to implement demand-based pricing that moves with the market according to an algorithm.

Benefits of a Dynamic Pricing Strategy

1. Understand Your Market

The first step to eCommerce success is understanding the market, even before you make any price changes yourself. Having your finger on the pulse of trends, patterns, and relationships will enable you to make better pricing decisions. But tracking this information manually becomes impossible as your operations scale. Automating both data aggregation and repricing enables informed decision-making that is essential to an effective pricing strategy.

2. Keep up with the Competition

Online retail is an incredibly competitive space. A quick search for any product is likely to return hundreds to millions of results when using a search engine or marketplace search bar. All of those competitors make it very likely that a consumer will choose to check out on another site. That’s precisely why you need to be able to make competitor-based pricing updates to ensure your pricing makes sense within your competitive set. A price that is too high will make sure your product isn’t considered and a much lower price will leave money on the table with each sale.

Of course, pricing isn’t everything in retail. Loyalty programs, perks, a unique product assortment, free shipping, and more will also factor into the buying decision for eCommerce customers. But having a price that makes sense within your competitive set is the first step toward winning the sale.

3. Determine Price Elasticity

New products are notoriously hard to price, with no competitors to reference. Price optimization for these products requires consistent monitoring and changes to understand their impact on demand. For example, if a new baby safety product has lackluster sales at $59, but increases significantly when lowered to $49, the sheer volume of additional sales could potentially make up for the revenue dip from the price reduction. But a retailer would only know this if they were able to conduct pricing experiments, which are core to a dynamic pricing strategy.

Dynamic Pricing Must Work Around the Clock

With the advent of online retail, the “closed” sign became a thing of the past for retailers. Shoppers were then able to browse and check out at any time of the day. And that meant retailers had to keep up with changing consumer needs to be able to meet demand at all hours. This is where repricing software is especially important. It makes it possible to update pricing automatically at any time of the day, whether retail staff members are in the office or not. An around-the-clock retail operation requires technology that can serve as its eyes and ears to make updates within set parameters to keep sales coming in at optimal prices.

Implementing a Dynamic Pricing Strategy

It is likely that you are already utilizing several pricing models. Whether you are making use of segmented pricing, penetration pricing, or time-based pricing, a dynamic strategy can still help with profit and revenue management. It fits in seamlessly to augment existing strategies with an algorithm that can optimize pricing over time based on real-time market intelligence.

Want to learn how to reprice effectively each and every time for long-term pricing success? Wiser Solutions can help with enterprise-level dynamic pricing without enterprise-level complexity.

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