How to find the best repricing rule?
In our last article about Business Process Automation, we discussed how to use modern technologies to save company’s time and money.
However, how can we check if the applied automation rules are optimal? How to know if the prices of the products in an online shop are set to guarantee maximum profit? You can do this by using a special module for testing the repricing rules.
Should I use A/B tests while setting the prices?
A/B tests are a method of comparing one or two variables in order to choose their optimal combination. It is most often used to examine the elements of the website and check which of them have the biggest impact on the number of conversions (e.g. is it better for a call-to-action button to be red or blue). Sometimes, the A/B test method is also used for checking the most effective prices of the products. If you use this method of price modelling, you should think on how to avoid a conflict between your company and its customers. Selling the same product at two different prices can be risky.
However, the Dealavo platform offers solutions that enable running price tests in a safe and effective manner, without the risk of harming your company’s reputation. This is possible because the Dynamic Pricing module allows you to test the rules on which you base your prices and not the prices themselves. What is more, the price tests are not run on a single product but on an entire category of products.
Dealavo solutions for manufacturers and online shops
The Dealavo tools, integrated with a CMS system, allow for automated price and promotion monitoring. They can be used to automate the prices in the shop on the basis of individually defined rules. The price level can also be suggested by a learning AI (Artificial Intelligence) algorithm.
The algorithm makes decisions based on different data: your competitors’ prices, availability of the product, shipping costs, website traffic, etc.
Automated price setting can bring significant benefits – in our article on How to increase profit by 50% using AI price rules? we described how the company’s profit increased by 50% by using the Dynamic Pricing module for price automation.
Which price automation rules are worth testing?
Which price automation rules can be tested in e-commerce? The rules are very often based on the target profit margin, position on the market or availability of the product in your competitor’s shops (e.g. if they lack the product, you can set a higher price). Below, we present some of the rules that you can set in the Dynamic Pricing module:
- Between two competitors – the rule allows for automated price setting between the selected competitors.
- Below/above selected numerical attributes – this option offers the possibility to set the target profit margin as a specific amount or percentage (e.g. the specified product price should include a margin of at least 5%).
- Below/above selected competitors – if we use this rule, the algorithm will generate lower or higher prices than the prices of our selected competitors.
- Increase/decrease by a specific amount/percentage – this option allows you to decrease the price by a specific amount or percentage in a specific period of time. This means that, for example, the price of a product will be reduced by PLN 1 every three days.
- By cost – this rule is based on the “cost-plus” method.
- Based on competitor market position – if you use this option, the prices of the products will be based on the market position of your competition. You can, for instance, set prices that will be higher than those offered by the cheapest competition.
- Low inventory – this option is very useful with end-of-line products and clearance sales; it allows for automated price reduction until your inventory level is low.
- Profit optimization – AI and exploration – this rule is particularly interesting. It allows you to have your prices optimised by artificial intelligence (AI). The algorithm learns from the gathered data and adjusts the prices to the market conditions in the most optimal manner.
How to easily check which of the price-setting rules will bring the biggest profit?
How to test price automation rules using the Dealavo tools? We will explain this on the example of a seller of electronic equipment.
The first step is to choose a category for the test. It can be, for example, “Mid-range telephones”.
The category is then divided by the system into two subcategories – each subcategory will be priced using a different method. This way, you will be able to compare the results of two subcategories that are very similar to each other.
The next step is to choose the rules on which you will base price automation. For example, half of “Mid-range telephones” category can be priced using the rule “Based on competitor market position” and with a limit based on margin (creating, for example, a rule whose purpose is to have the cheapest offer on Amazon provided that the price is at least 10% higher than the costs) and the other half according to the “Profit optimization – AI and exploration” rule, where the algorithm itself will propose prices based on conducted simulations.
After the defined period of time, you will have a chance to compare the results of both subcategories and apply the rule that brought the biggest benefits (e.g. higher increase of income) to the entire product category. This way, the company can apply the automation rules that provide the best results.