3 Ways Dynamic E-Commerce Pricing Can Become Your Secret Weapon To Increasing Profits
- 14 December 2018
We are living in an era in which data and proper technology play a huge role in determining the success of e-commerce retailers. With the structured data and the right usage of technology, e-commerce directors can overcome their most challenging steps while making the right pricing decisions, such as competitive pricing, market-oriented pricing, and customer-based pricing. The most challenging steps, while forming the right pricing strategy, are collecting accurate data, generating smart pricing decisions based on the data, visualizing the results, optimizing them, and repeating that process each time with better insights and without spending too much effort or time. Without an efficient data processing system, this would be a complete nightmare!
In order to build a fine-tuned data management flow, all components should be solidly linked to one another. You need to know your goals and KPIs well and define the data points, which will then lead you to success.
That progressive flow also opens many opportunities in pricing, if you embrace a dynamic pricing model. It enables you to efficiently handle pricing fluctuations in the market, and better analyse the behaviour of online shoppers towards your pricing decisions. Moreover, dynamic pricing allows you to gain a better understanding of products by assessing your competitors’ prices, stocks, conversions on their product sites, and reviewing their product prices. As a result, your online business will have a seamless competitive advantage by responding smartly to different scenarios in an automatic way and in real-time.
A dynamic pricing strategy not only helps you set competitive prices, but also motivates you to set higher prices. With the beauty of the technological improvements that have happened in dynamic pricing, you no longer need to change your prices randomly and continually lower your prices. By setting up smart rules, with the aid of dynamic pricing software, in some situations, you can improve your margins without losing your strength in the market.
That process sounds challenging, as there are tons of unstructured data flowing around businesses today. Moreover, most e-commerce retailers don’t know how to analyse or how to generate insights from the enormous amount of data available. Thanks to available solutions in the market, you can overcome these problems and have a fine-tuned system.
In this article, you will digest the dynamic pricing approach and learn applicable strategies that will enable you to set higher prices, which will boost your profits. Let’s start with the definition and the working principle of dynamic pricing.
What Does Dynamic Pricing Mean?
Basically, dynamic pricing is the model of pricing management that enables e-commerce retailers to set up automated, flexible, and customized price changes according to competitors’ prices, stock status, demand in the market, conversion rates, and the purchase price.
In other words, it means finding and applying in real-time the favourable price at the right conditions in response to demand and the competitors’ status, while taking into account your business objectives. E-commerce businesses can set up various price limits and analyse price elasticity’s before deciding on an optimal product price.
Dynamic pricing concepts also let retailers generate valuable insights into market trends.
How Does Dynamic Pricing Work?
As mentioned earlier, collecting data is great, but how are you going to use that data? Machine learning algorithms are a wise way to automatize dynamic pricing flow with rules that you set by taking all available data into consideration. Lots of existing competitive intelligence tools enable you to automate price changes based only on a competitor’s data, pushing you into the dead-end of margin-shrinking price wars.
Thanks to smart, dynamic pricing tools, you can set higher prices and leverage powerful pricing engines, which enables you to build rules based on:
- Data from ERP, such as cost, stock, and any other parameter
- Pricing of competitors
- Views and conversion tracked in real-time by our analytics pixel
Flexible pricing rules can be defined by an extensive set of pre-sets to give you all you need
Once the best price rules are set, you can enjoy the rest! The dynamic pricing machine works continuously, throughout the year, including weekends and holidays, and changes your prices when the rule that you have set is triggered. With the mix of competitive intelligence and dynamic pricing power, your business can gain a powerful ability in the market. As you are able to react to every single move in the market automatically, your prices will always remain at the desired level.
Now, let’s move forward and see the magic of dynamic pricing to increase your prices and your profits.
1. Increase Prices By Following the Most Expensive Competitor in the Market
You don’t have to be the most expensive in the market, even if you aim to increase your profit margins. You can both increase your prices and hold a competitive position in the market with the dynamic pricing model.
What you need to do is list down the closest or most expensive competitor in the market. Your next step should be setting up a dynamic pricing rule such as:
“When a competitor increases its prices, always increase my price and set it 5% below the competitor’s.”
With the rule that you set, you will always follow that condition.
By doing this, you eliminate the risk of being too competitive, while at the same time, you will be selling your products for higher prices. In this case, you have to be sure that your e-store and services are at a very high level, because customers will not pay more if they can buy at a lower price. You need to give them some additional benefits, such as the perfect customer experience, etc.
2. Increase Prices When Your Stock Level Falls Down
You do not have to rely just on competitors when deciding dynamic pricing rules. You can predict the demand by looking closely at your own stock level. The assumption is quite straightforward using this strategy. If your products are sold fast and your stock level falls down below a specific level, it can be a great indicator of a high demand in the market for your products. In this case, increasing your prices would be a wise move.
So, you can set a rule by combining your stock level and your prices.
A rule such as this rule enables you to sell more expensive:
“Increase my prices when the product level is below X level.”
3. Increase Prices When Your Competitor is Out of Stock
Let me explain a little about basic online shopper behaviour. If a product is scarce in the market, and if it becomes hard to find, then customers perceive that the product has great value and is trendy.
That’s what we call “consumer psychology.”
Think of a scenario that an online shopper is searching for the latest model of a handy coffee machine. If he cannot find the item from one or two of your competitors, then you can become the next store that the shopper looks at. Meanwhile, if you detect that your competitors are out of stock for that coffee machine, you can create a great opportunity to increase your prices, and do this in real-time, without wasting time and waiting for competitors who surely will quickly fill any stock gaps.
This is where dynamic pricing concept comes to the stage. You can set a rule such as:
“If Competitor A is out of stock, increase my prices by 10%.”
With the power of dynamic pricing, you don’t have to check your competitor’s stock status every day, and you can benefit from that opportunity without any hassle.
At the end of the day, every e-commerce retailer’s goal is to increase their revenue and improve their business. A dynamic pricing approach is one of the most sustainable and hassle-free strategies in the e-commerce channel to make more money from every sale. As pricing is generally associated with applying the best deals in the market, you can break the rules by searching for ways to sell at higher prices with dynamic pricing abilities.
With the smart and proven tactics, you will both outsmart your rivals and increase the value of your purchase rate. Also, the most effective component of these strategies is the dynamic pricing management tool used to structure the data and generate smart decisions.
If you have any tactics that lead you to better margins, please feel free to share with us. We are always here to listen to your experience and enrich our content with your ideas.
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Dealavo Smart Prices is a tech company specializing in web scraping, data cleansing, data analysis and delivering powerful and actionable e-commerce insights to brands and e-shops. For more than five years we have been delivering services for many clients from 30 different countries. We have gained the trust of global brands including Samsung, DeLonghi, MSI, Xiaomi, Acer, Epson, and many more, including one of the top 10 biggest pure play e-shops in Europe.