Price management in e-commerce – Dynamic Pricing
- 18 February 2020
The prices of products sold online rarely remain the same. In many areas, they keep changing constantly, depending on the current demand and other factors, such as the prices and availability at competitive stores, or periodic discounts. It is quite difficult to pick the best prices for maximum profit, particularly if you have to do it manually. To make it easier, however, you can always use a tool for price automation (Dynamic Pricing), so that the prices are determined automatically based on predefined rules.
Benefits of Dynamic Pricing
The most important purpose of Dynamic Pricing is to optimise the prices at your online store and increase your profit. With a suitable pricing policy, you will be able to significantly improve your ROI within a few weeks from the time you introduce this new tool. In order to achieve satisfactory results with minimal effort, it is best to use intelligent Machine Learning algorithms in that process.
When should you use Dynamic Pricing?
Dynamic Pricing is a particularly common solution in the hotel and airline industry, where the prices are strongly dependent on the season. Other examples include electronic goods and DIY, i.e. areas where the consumer is sensitive to price variations and where pricing rules can be defined based on shortages of merchandise offered by the competition. Such strategies usually favour richer clients, who can pay more when determined to buy a particular product or service. Therefore, Dynamic Pricing has to be used with care because any radical changes in your offering noticed by the customers may cause them to lose their trust in your brand.
How to use Dynamic Pricing?
Dynamic Pricing can be based on many rules, such as prices at the competitive stores, consumer behaviour on your website, product availability or conversion rate. The strategy is usually adjusted to the prices of the competition, but it is a good idea to also set other criteria in order to avoid price wars and falling margins.
The Dealavo tool enables automated pricing based on a number of different rules and factors, e.g.:
- Prices of the competition,
- Demand in recent periods,
- Average market price of the product,
- Setting a price lower by a specific amount or percentage from the prices of a selected competitor,
- Setting the price at a particular position in a ranking,
- Sales volume at a particular price,
- Setting limits, e.g. margin no lower than 7% or change not exceeding 20%,
- Out-of-stock analysis,
- Analysis of customer behaviour,
Dynamic pricing in practice
Using the Dealavo price monitoring and automation platform creates a wide range of opportunities – for instance, it enables you to automatically integrate the platform with your store. You will then be able to approve the recommendations offered by the tool with a single click. If the platform has not yet been integrated with your store, the suggested prices will be sent to you so you can enter them manually.
When you optimise your prices with Dealavo, you can pick the most price-sensitive group and then select your strategy accordingly. We also recommend using A/B tests to find out which measures are the most effective. Our tool can also generate additional reports to help you with business analysis – for instance, by showing you the prices and margins for the individual product groups.
If you are wondering how to optimise the prices at your online store – contact us. We will discuss your e-commerce strategy together and help you pick the best solution to improve your sales results.