Dynamic pricing management
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:
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Industry—Retailers need to check what is the most basic price of a product among other brands.
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Market—What is the current supply and demand? What is the predicted supply and demand?
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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.
Advantages
Like any other strategy, dynamic pricing has advantages and disadvantages. Some of the benefits of applying a dynamic pricing strategy include:
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Allows retailers to gain insights on customer purchasing behavior and market trends
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Retailers can set different product prices based on the most basic price set for the product by other brands
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Allows retailers to analyze what price would be most acceptable for the customer to spend
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Helps to maximize ROI
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Provides retailers with a competitive advantage
Disadvantages
Some of the disadvantages of dynamic pricing include:
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Not regularly updating the price. Even though software manages the price, it is essential that human interaction is available constantly
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Fluctuating prices often confuse customers (some customers might wait for the prices to change again or some customers might lose trust)
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Competition with other brands might increase initially when the strategy is applied
Best practices
Some best practices that you can apply when implementing a dynamic pricing strategy include:
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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.
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Introducing a loyalty program can help introduce different dynamic pricing levels for different types of customers
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Analyze real-time demand for products when setting prices
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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.
B2B vs B2C
Dynamic pricing differs between B2B and B2C businesses.
B2B should
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Provide customized pricing for customers
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Automatic change in price based on the quantity
B2C should
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Maintain consistency
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Maintain price
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Display promotions and discounts
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Terms and Conditions to be displayed