Dynamic pricing is a responsive pricing strategy where the price changes based on the demand, supply, trend, and competition in real-time. It is not a new concept; it has been around for a while now but is surely taking over ecommerce. Dynamic pricing gives retailers the leverage to change prices to have a competitive advantage. For example, you can try decreasing the price of a product that isn’t selling well to try increasing sales.
There are three factors that drive dynamic pricing, including:
Industry—Retailers need to check what is the most basic price of a product among other brands.
Market—What is the current supply and demand? What is the predicted supply and demand?
Customers—What is the customer purchasing behavior? What is the price the customer is willing to pay for a product.
You need to look at every aspect when working on a dynamic pricing strategy.
Like any other strategy, dynamic pricing has advantages and disadvantages. Some of the benefits of applying a dynamic pricing strategy include:
Allows retailers to gain insights on customer purchasing behavior and market trends
Retailers can set different product prices based on the most basic price set for the product by other brands
Allows retailers to analyze what price would be most acceptable for the customer to spend
Helps to maximize ROI
Provides retailers with a competitive advantage
Some of the disadvantages of dynamic pricing include:
Not regularly updating the price. Even though software manages the price, it is essential that human interaction is available constantly
Fluctuating prices often confuse customers (some customers might wait for the prices to change again or some customers might lose trust)
Competition with other brands might increase initially when the strategy is applied
Some best practices that you can apply when implementing a dynamic pricing strategy include:
Set a good pricing strategy that is more initial pricing based. Initial pricing is straightforward and helps you understand the market and the market pricing.
Introducing a loyalty program can help introduce different dynamic pricing levels for different types of customers
Analyze real-time demand for products when setting prices
Apply a holistic approach when implementing dynamic pricing because a product can be different prices in different stores (for example, a hot Dog in IKEA costs less than buying a pack of buns at the supermarket)
The most effective way to benefit from implementing a dynamic pricing strategy is continuously learning about your customers, competitors, and the market.
Dynamic pricing differs between B2B and B2C businesses.
Provide customized pricing for customers
Automatic change in price based on the quantity
Display promotions and discounts
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