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Setting the Record Straight: Debunking Retailers’ Dynamic Pricing Fears

The other side of fear is freedom. As the retail world gets more and more complex, with new channels to promote and sell emerging almost everyday, it only makes sense for retailers to put pricing intelligence to work. Providing insights and trends, as well as an efficient way to implement price changes, dynamic pricing seems like the solution for retailers to remain competitive and get ahead. So why are so many retailers hesitant to adopt this strategy?

Let’s take a look at the top 5 issues that worry retailers and set the record straight once and for all:

Issue #1: Retailers will lose control over their prices.

Many retailers believe that with dynamic pricing, all their pricing power would be lost. In reality, dynamic pricing provides retailers with real-time data and analytics displaying current market trends, while still giving them full control over the prices that consumers see. Retailers can see how various price levels affect consumer demand, and apply this information toward their supply and production chains. After all, with more information comes more informed decisions. Dynamic pricing creates a more well-rounded picture of the market for retailers, allowing them to set effective prices consistently.

Issue #2: Consumers will hate my new pricing strategy and this will hurt brand value.

Retailers sometimes shy away from dynamic pricing because they worry that fluctuating prices will send consumers running for the hills. To keep this from happening, retailers are required to set a floor price for their products. With a price floor that reflects brand value, retailers are able to protect their businesses and effectively implement a dynamic pricing strategy. For example, let’s take a look at Apple. Apple recently earned the top spot as the #1 valued brand in the world according to Forbes and it rarely changes its prices. However, Apple uses a strategy called version pricing, setting different prices for products based on the amount of memory the item holds, as well as which edition it is.

Retailers should also remember that without dynamic pricing, there would be no special offers or promotional periods. Remember JC Penney’s Every Day Low Pricing strategy from 2012? The retailer threw out traditional dynamic pricing strategy and executed a fixed low-pricing strategy. Gone were the days of exciting sales that got many shoppers in the door and buying more. This ultimately caused JC Penney’s brand value and market share to fall and the company is still picking up the pieces today.

 

Issue #3: Buying and monitoring a dynamic pricing program will be expensive.

Dynamic pricing doesn’t need to be intimidating — financially or conceptually. Purchasing a pricing engine to gather data and track competitors actually saves and makes retailers money in the long run. Dynamic pricing allows retailers to set optimal prices using the real-time data on market demand and supply gathered from the program. Price flexibility also gives retailers the ability to stay competitive and meet business goals with price increases and decreases. Retailers will no longer have to hire employees to manually track companies, saving time and resources. Furthermore, since the software has the ability to search the entire market quickly, retailers would be able to monitor a larger amount of competitors daily.

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Issue #4: Software as a Service, or SaaS solutions work in the same way for every retailer, resulting in the same prices.

Just because you use the same catering company, doesn’t mean the menus will be the same. Similarly, while many retailers could use the same platform, SaaS programs are designed to cater to each individual company. Have a certain competitor or market you’re after? No problem. Dynamic pricing software is completely customizable, making it possible to conquer the unique challenges and goals that each business has.

Issue #5: The possibility of an algorithm mishap.

Since the prices generated from a dynamic pricing engine are calculated with an algorithm, there is a possibility that the algorithm could miscalculate prices. But don’t fret, this definitely doesn’t mean that all profit will plummet. Retailers are presented with the prices that come out of the algorithm as recommended price changes. So when a price is calculated, retailers are able to review it and catch any error, giving them the final word on what price is shown to consumers.

Your turn! Debunk other worries that retailers may have over dynamic pricing below!

Contributing Editor: Amanda Lin

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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