Dynamic pricing tools and it’s implementation
- 16 August 2022
In today’s world of fast-growing e-commerce, it’s easy to fall behind competitors that adapted their businesses better to given circumstances such as trends changes or customers’ expectations. One of the crucial things when it comes to setting up a strategy to always stay ahead is the price.
Since the price is so important, it has to be carefully analysed and matched with the company’s goals and purposes. Price analyses have to include factors like costs, competition prices, customers’ price perception and finally revenue. For that, business owners need to think deeply about their pricing strategy and what approach will give them the most value.
What is Dynamic Pricing?
Dynamic pricing is a pricing strategy that fully or partially adjusts new prices for given products whenever there’s a need for them. There are various reasons why prices should get updated and there are specific industries in which this method applies the best.
First of all, prices should be changed whenever competitors change them too. You don’t want to get left behind in this aspect. Secondly, there are times when lower prices can lead to sales growth, but there are also situations in which demand is much higher – it’s a good occasion to raise the prices.
Dynamic pricing works magic in e-commerce stores, e-brands and retailers using platforms such as Amazon. This pricing strategy also fits great in more traditional businesses such travel industry. Aeroplane tickets, hotel rooms, car-sharing apps – every single field that depends on dynamic parameters such as dynamic demand will appreciate the use of dynamic pricing.
Dynamic Pricing in E-commerce and Retail
Dynamic pricing plays a huge role in the e-commerce and retail field since the majority of variables in the field are fluctuating daily. Fluctuating demand, supply, customer loyalty, competition, trends and many more – all form an e-business archetype with a strong dynamic character.
In the e-commerce field, dynamic pricing gives brands the following advantages:
- adapts prices to every little market change (either it’s competition moves or any other factor like demand fluctuations)
- raises your margin when other e-shops temporarily lack supplies
- raises the prices (by indicated values) due to market trends if you’re a monopolist
- appropriately lowers the prices (if a brand is new on the market) – it’s called penetration pricing
- allows pricing time-based
Dynamic Pricing Examples
We all benefit from the services provided by all kinds of companies. Whether it’s food delivery apps, online clothing shops or travel companies that lay out different vacation offers for us. It’s good to know that a great part of them uses dynamic pricing in their strategy.
Retail is probably one of the best examples when it comes to a dynamic pricing strategy. Online retailers use this method mainly focusing on demand. It means that they often use price tracking software and adapt the prices of their products to different changes to demand.
Companies like Uber, Bolt and Lyft use dynamic pricing systems. They base their pricing strategy on outside factors such as rain or rush hours. That’s why if you want to use Uber on a rainy day, during the rush hours – you will pay extra since the price has increased.
Events companies benefit a lot from dynamic pricing strategies. They often use the levers of urgency and scarcity. It means that for example, an early bird gets cheaper tickets while the “last minute” ticket has a way higher price.
If you ever travelled by plane, you probably know that air transportation companies use a dynamic pricing strategy based on time. A ticket for a given destination often changes its price according to departure time, season and the percentage of seats left on the plane.
Hotels and Airbnbs set up their prices according to the time and season. During the peak season, like holidays, business owners raise the prices of their rooms or apartments and make a fortune without changing their offers at all. During the other time of the year, by analogy with a given example, prices go down.
Pros and cons of dynamic pricing strategy
Although dynamic pricing is a great strategy, it has its downsides like any other great solution.
Pros of dynamic pricing
More control over your pricing plan
If you’re stuck with one, fixed price for your products, it means that you’re missing out on many opportunities.
In today’s dynamic world of different events such as pandemics, continually changing trends and decreasing client loyalty, it’s almost impossible to get ahead of competitors who use dynamic pricing methods.
With real-time data on purchase decisions, price changes and new patterns, it’s so much easier to perfectly adapt pricing strategy to maximize the revenue.
Increase in revenue
A better understanding of your customers comes with including their perceptions and insights into your pricing strategy.
With dynamic pricing, you can outrun your competition by always having accurate information about their pricing moves. Furthermore, you will be able to adapt your prices to their actions and other market factors. All that will keep you ahead of your competitors and set you up for an increase in your revenue.
Getting to know your customers
No better thing you can do as an online retailer than genuinely know your customers and their needs. With the deployment of a dynamic pricing system, you will be provided with a broad overview of different trends in the market.
With a help of dynamic pricing software, you will know how often your customers buy your products and what lowest and highest price are they willing to pay. Among many other insights a price tracking software will provide you with, these are the ones you want to take a closer look at and analyse.
Cons of dynamic pricing
Risk of starting a price war
It’s important to state that you can adjust your dynamic pricing strategy to your business needs. If you plan to always lower the price below your competitors’ fresh prices, you may start a price war and that’s a lose-lose situation for every part of the conflict.
Risk of losing customers
Everyone likes buying stuff at better prices, but no one wants to see that someone else bought the same product for less at the same store.
That’s the risk of a dynamic pricing strategy. Some of your clients may end up not content with what they spent on your products and eventually head to your competition.
Remember: your prices shouldn’t change so dramatically so they do not confuse nor alienate your clients.
Dynamic pricing being driven by inaccurate data
Although today’s technology enables very precise and accurate data about any given factor, there are still price tracking tools on the market that lack quality. That’s why it’s so important to choose the most effective and precise price tracking software available.
Note: we will go through the best price tracking software in section 6.
How to implement dynamic pricing
As good as the idea of dynamic pricing may seem, it’s not that easy to implement it in your business. There are some key steps you need to make to efficiently price dynamically.
Define an objective
It would be best if you started with setting up your main goal of implementing a dynamic pricing system into your business.
Whether it’s increasing your profit margin, getting new customers or any other reason, you simply cannot forget about it. Establishing your goal will help you not only to determine which metrics to use in the process, but it will also allow you to measure your effects and evaluate your customers’ satisfaction.
Choose a pricing method
Second, you need to rethink what pricing method you want to use in your dynamic pricing strategy. There are five main ways to use dynamic pricing and each of them works best if applied to the right business. Here they are:
- Segmented – based on geography (example: you can charge more in higher-income areas)
- Time-based – focused on the period used by a client (especially used in the hospitality industry)
- Peak pricing – prices are higher during a product’s peak season
- Penetration pricing – based on market penetration with an extraordinarily low price to attract new customers
- Market-based – based on market changes
What’s the best method for your business? Take your time as choosing one exact strategy can take time, but it’s better to think it through.
Create a value metric
It’s important to create an appropriate value metric. But what exactly is “value metric”? It’s the physical price you charge for your offerings. Whether it’s a product or a service, you need to develop a value metric that will not only attract customers but also make them trust you.
With good value metrics, they won’t be so vulnerable to price changes and will easily adapt to changes you might eventually make.
How to do it?
Adjust the prices of your products to their value and what they give your customers. Secondly, be transparent about products’ differences, and if you for example offer different prices in a subscription pricing model, lay out all the pros and cons so that your customers know exactly what differentiates your assortment. It will gain their trust and loyalty – that’s for sure.
Test and make necessary changes
If you are ready to launch your dynamic pricing strategy, do it and watch the outcome. Test different price variations, track your demand, monitor all the changes and take action whenever something needs improvement.
Note: It’s really hard to do it all manually so it would be best for you to use effective price tracking software for that purpose. We will go through the best price tracking software in the next section. Let’s move on!
Dynamic Pricing Software – Top 5 Tools
Dealavo is an outstanding software that has a twofold structure – it works great both for brands and e-shops. It’s known for having a very wide range of features such as price promotion tracking, many integrations, banner monitoring, machine learning algorithms and components.
It’s undeniably one of the best tools when it comes to dynamic pricing efficiency and accuracy.
Dealavo takes care of almost 700k product offers and provides its services all around the world. Their vast experience finds its reflection in very high customer satisfaction. Dealavo is definitely one of the best performing price tracking software when it comes to feature range, accessibility and the ease-of-use.
Prisync is a tool created mainly for online shops to efficiently monitor competition and set new pricing strategies. It’s known for excellent data import and export processes, accurate price tracking and stock availability tracking.
Prisync is a good solution for businesses seeking a reliable dynamic pricing solution with a very easy-to-use and clear UI. Great customer service is what also distinguishes Prisync from other similar tools.
Please check how Dealavo is different than Prisync
Minderest is a competitor price analysis software which includes dashboards, historical data and market trends. It provides all the information needed to accurately plan, set and develop an efficient dynamic pricing strategy.
It provides MAP & MSRP monitoring for brands and e-shops as well as content compliance and raw, accurate data via web API for all types of companies.
Omniaretail is a very handy tool created mainly for retailers. It’s a great solution when it comes to dynamic pricing because of its wide range of features that allows you to precisely match the strategy with your business’s main objectives.
Although sometimes Omnia’s formulas might get a little overwhelming, after some time of using it gets clear and easy to use. Omniaretail provides high-quality data gathered from multiple sources including comparison shopping engines and your competitors’ websites.
If you want to compare Omniaretail with Dealvavo check here
Last but not least, there’s Feedvisor which allows all kinds of companies to accurately track competitor prices with the help of AI algorithms. Feedvisor also provides its services on the most popular platforms such as Amazon or Walmart.
Feedvisor’s key functionalities are 3P Storefront Launch and Management, Content Listing Optimisation and Marketplace Cleaning. Professional expertise combined with effective AI algorithms is what makes Feedvisor a really solid software that’s worth giving a try.
After this article, you’re all set to implement a dynamic pricing strategy in your business. Now you know exactly what you should focus on before launching the strategy, during the implementation and after successful application of price monitoring software with such feature.
There’s only one thing that’s left – what tool will you choose to get ahead of your competition with effective dynamic pricing?