The term “dynamic pricing” refers to a pricing strategy that uses variable prices rather than fixed prices. Instead of deciding on a single price for the season, retailers can change their prices several times per day to take advantage of the constantly changing market. Personalized pricing is frequently confused with dynamic pricing. in order to actively recognized such a strategy, price monitoring and MAP monitoring software are highly recommended.
With Dynamic Pricing, two clients in the same market might obtain two different rates for the same product. GrowByData investigated the many dynamic pricing methods and how competitive pricing software might aid in the comprehension of trends and dynamic pricing strategies.
Requirement for dynamic pricing
- When it comes to pricing, there is a certain amount of market power.
- Consumers with varying demand elasticity and willingness to pay
- The ability for a company to be aware of how demand changes.
- Prevent resale between various price points.
Examples for dynamic pricing:-
Setting the pricing for Tootle Rides – the firm promotes that the price will change depending on demand. Before committing to the ride, customers may see the anticipated amount they will pay.
Google Ads is a service provided by Google. The cost of Google advertisements is determined by supply and demand in the marketplace. Because there is greater demand for ads for competitive keywords, the price will rise. The price of a keyword will drop if it gets less competitive.
Top 5 Methods for Doing Dynamic Pricing the “Right” Way
1. Understand your Cluster of competitors
You must group your rivals and compete as a result. If you’re a global brand, your only competitors are other global brands and emerging companies. You don’t have to compete with one-time or small-scale sellers.
2. Match at a Variant Level SKU
At the variant level, match your SKUs to your rivals’ SKUs perfectly. A size 8.5 Nike Air Jordan White sneaker cannot be compared to a size 9 Nike Air Jordan White shoe. A new product SKU must also be compared to rivals’ new SKUs rather than being reconditioned. This is a difficult challenge to tackle, and it is one of the many reasons why Price Intelligence is so difficult to grasp. Be wary of re-pricers that don’t offer variant-level SKU matching.
3. Set right Dynamic Pricing models
Make informed decisions about your re-pricing business regulations. Begin by determining a target price for your firm. Then apply at a granular level — by brand, category, locality, seasonality, and any other significant industry characteristics.
4. Select the Price Suffix
The Price Suffix is a line of text that appears after the product pricing to provide further information about the price or the product. Understand your demographics, culture, and consumer behavior, and apply flexible and variable rules.
5. Increase or decrease Price
Depending on the pricing range, stay a certain amount cheaper or more costly than your opponent. You are less resistant to market and price shift volatility if you are the sole seller in the market. It’s also OK if a store isn’t the cheapest. As a retailer, you don’t want to compete with competitors who may have made a price error or are trying to get rid of outdated inventory at a loss. On the other hand, you don’t want to go too low on a popular lucrative SKU that is going to run out of stock.
In conclusion, ecommerce Dynamic Pricing systems give a significant strategic advantage. There are many companies go through an implementation process where THEY ask comparable questions to our customers in order to set them up for success with dynamic re-pricing. These type of companies match at the SKU level and provide high-quality data at the SKU level.
How often should you change your product prices?
Your prices might vary on a monthly, bi-monthly, weekly, bi-weekly, or daily basis. If you sell in a highly competitive business where your competitors use dynamic pricing, it’s obvious that your sales will suffer unless you stay competitive and keep up with the changes. And, in order to stay competitive, it’s a good idea to ask you, “How often do I need to adjust my prices?”
What revenue impact can we see?
Maintaining static rates when competitors price dynamically is a terrible approach. To keep ahead of the competition, you must modify rates as the market dictates. If your competition changes pricing twice a day, you should alter prices at least once a day if not more frequently.
Why a Dynamic Pricing Strategy Is Crucial?
1. Ensure Price Competitiveness
With algorithmic pricing modifications depending on various data, you may compete with other merchants on price. Similarly, the procedure assures that you are not underpriced or overpriced in comparison to your main rivals.
2. Boost Sales
A top retailer in the Sporting Goods industry began their pricing journey with Price Intelligence Software after facing fierce competition. Within the first 10 days after each price reset, sales of the new pricing climbed by an average of 36%. Revenue declined significantly from day 10 to day 30 before each subsequent price update.
This analysis demonstrated that
- competition-based pricing is a suitable strategy for this category of products
- incorporating it into the price optimization mathematical model is crucial.
3. Identify your product’s Price Elasticity
Over time, you must improve the pricing of your goods to maximize profits. Set your pricing at $18.90 for today’s product and it will earn you more money than a product priced at $20.
4. Lay the foundation for AI/ML-driven Dynamic Pricing
The price optimization procedure provides you with information over time about the price point that delivers the most sales income during a given period. The procedure may be used to create a self-learning mathematical model using AI/ML, or machine learning and artificial intelligence (AI/ML).