Pricing Wars – Dynamic Pricing Moving Offline

Pricing wars have arrived in a big way for retail, and it seems to have been occurring in stealth mode. According to a report by RIS, more than one-fifth of retailers say they have pricing intelligence tools and actively use them. Since most retail technology studies over the past 18 months have not included dynamic or intelligent pricing as measurable metrics (or even mentioned them), these early adopters have been operating in stealth mode to their advantage. That advantage is likely to shrink considerably over the next 12 months as an additional 30% of retailers plan to add pricing intelligence solutions.

Part of the reason for this change in how retail goes about setting its pricing can be linked to an increased awareness of how showrooming has been affecting sales. With stores realizing that they may be losing customers while they are actually physically shopping in the store, they pushed back using some of the techniques below.

  • Over 60% of retailers now identify getting the price right initially as the most important factor in competing with showrooming techniques.
  • Over 50% have set up some type of in-store price matching. This particular technique often comes with “fine print” attached to help limit the stores actual “risk” in needing to match prices.
  • Around 35% of retailers have adopted some form of dynamic pricing as a means to combat showrooming and compete more effectively.

Dynamic pricing has long been part of many online retailers’ pricing strategy, with Amazon in particular standing out. To illustrate just how much Amazon relies on dynamic pricing consider the following: Best Buy and Wal-Mart implement over 50,000 price changes in a given month. During the 2013 holiday shopping season, Amazon implemented more than 3 million pricing changes.

While retail is definitely moving more toward dynamic pricing and adopting pricing intelligence and repricing solutions in general, they remain far behind “internet speed”. Less than 7% of retailers change prices on even an hourly basis (compared to the online market where pricing can change multiple times over just minutes). Over 45% of retailers still feel that pricing only needs to be adjusted once per week. Retail may face unique challenges in creating effective systems to implement dynamic pricing, however, one would be hard pressed to agree that once a week price changes will prove effective in competing when the competition (both online and offline) has adopted true dynamic pricing strategies.

One of the challenges that may be driving this “disillusionment” has to do with exactly who it setting the prices. Over 50% of retailers report that pricing is set by their merchandising departments – which makes sense to a point since they control assortment, purchase products and are incentivized to maximize margins. An additional 26% of retailers report pricing set by marketing  – which also makes sense since marketing is typically responsible for actually generating sales and for brand management. Only 10% report that marketing and merchandise work together on setting price and pricing strategies. In today’s age of dynamic pricing, such collaboration would seem to be the ideal method. Marketing can be more effective from a dynamic perspective, but merchandising should have input from the purchasing and margin perspective as well. Combining these elements allows for a pricing strategy that can take all factors into consideration and respond swiftly to changes.

Dynamic pricing and repricing solutions may be part and parcel of the online market, and are growing in use among retailers, but the 2013 holiday season reminded everyone of the importance of not leaving their pricing on full autopilot – there should always be a manual component.  Online, at Wal-Mart, shoppers were greeted with $9 computer monitors and $100 bottles of Lysol and over at Best Buy, widescreen TVs were mistakenly priced at $9.99. These mistakes were quickly fixed, but resulted in bad publicity and losses. Most retailers agree about the importance of the human element as part of their pricing mechanism. According to the RIS report, over 70% of retailers reported using a hybrid approach of automated systems and a manual component and mistakes such as these are relatively rare.

Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

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