12/29/2023 0 Comments Dynamic pricing and revenue management![]() ![]() The objective of dynamic pricing isn’t to damage your customer relationships. What you need is a platform that can help you determine the variables, compile and process the data, and change your prices accordingly. And you need to use the information you glean from the data to change your prices in real-time. You need to process this data in a way that makes it useful to you. You need to select the data sets you use in a way that does not alienate your customers. In other words, you need data in order to make your prices effectively dynamic. The premise of this definition is that you know the level of demand, the type of consumer, and other relevant market conditions and then update your strategy.Īccording to Retail Prophet, “Inputs such as demand and popularity for the product and competitor prices prompt real-time fluctuations in the listed price of an item.” Think back to our original definition of dynamic pricing. The second problem is actually more difficult to solve on your own. Your purpose is to respond to your customers more individually. An honest and trustworthy approach to dynamic pricing can avoid price discrimination, according to the Harvard Business Review.Īfter all, the objective of dynamic pricing isn’t to damage your customer relationships. There are two big challenges when it comes to effectively implementing dynamic pricing.ĭynamic pricing does not equal price discrimination: selling the same product to two different buyers at different prices. If you’re not responding, then you’re losing them to competitors who will. They look for better prices, better products, and better choices. In other words, these pricing strategies can fall short because your customers are more dynamic than you are. Remember JCPenny’s “Everyday Low Pricing”? It has demonstrated how well that works (hint: not well).Īccording to Scott Randel of iProspect, “With fixed pricing, businesses can be either missing out on profit or potential sales depending on consumers in the market.” Prices are still dynamic, but they’re slow and rather unresponsive in a rapidly changing market.Įither way, you’re talking about fixed prices. On the ground, your customers are all charged the same price while you capture and analyze data. This process can take weeks, especially if done manually. You compile market data, process the data, and then adjust prices as needed. Most retailers, however, prefer fluctuating prices, because they allow them to have more control over sales volume.įluctuating prices are basically what dynamic pricing used to be. You may find more brand manufacturers prefer a fixed-price strategy over a dynamic one. These pricing strategies assume you will achieve the sales volume necessary for your desired profit margin to cover your fixed costs. You can set a static price based on your variable costs or price to achieve your desired profit margin. If you refuse to be dynamic, you’re left with two basic pricing strategies. Why Do Other Pricing Strategies Often Fall Short? It also ensures that the customers who value a product the most have the opportunity to purchase it. ![]() Retail Prophet put it this way: “It enables a retailer to optimize their pricing based on real-time inputs, as opposed to setting a price over the long term and either pricing too low and giving up margin needlessly or charging too much and losing sales.” Using a dynamic pricing algorithm enables retailers to capture the most revenues from their products. Customers caught on to the idea and now expect fixed prices, especially in the retail market. ![]() A fixed price seemed more “fair” and it was certainly less time-consuming for retailers. In fact, pricing used to be based on haggling. The basic idea of adjusting pricing to match demand is as old as pricing itself. The Effect of Dynamic Pricing on ProfitabilityĪ dynamic pricing strategy isn’t new. ![]() Like dynamic pricing itself, the definition is more complicated than it may at first appear. Perhaps this definition seems like a simple way to start a discussion of the relevance of dynamic pricing for your online retail business. A good dynamic pricing strategy allows you to reprice quickly and at scale, all while understanding the effects of your changes. Simply put, dynamic pricing is a flexible strategy to price your products based on a variety of factors, including market demands, price bounds, and seasonality. ![]()
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