Leverage all your data with Dynamic Pricing
Dynamic Pricing for online shops
What is Dynamic Pricing?
Dynamic Pricing is a pricing strategy in which prices are changed based on predefined rules and market conditions. Dynamic pricing (also referred to as repricing), is an increasingly frequent solution in e-commerce. More and more online stores use dynamic pricing software to fully use their margin potential – maximize profits and improve positioning in ecommerce.
Dynamic Pricing – who is it for?
Dynamic Pricing is used particularly often by online shops that offer a wide range of products on highly competitive markets.
Pricing automation can provide them with the following benefits:
- Time savings – with pricing automation, it is no longer necessary to manually adjust all offers to the ever-changing market depending on the current demand and moves of your competition. The system will match the prices accordingly, and you can always check the results in a transparent panel.
- Higher profits – Dynamic Pricing makes it much easier to react to any opportunities for higher profits. Sometimes, reducing the price by 1 cent can cause your product to be shown first in the ranking on the most important marketplaces, providing you with bigger profits. Pricing automation is more than just price reduction – sometimes, increasing your price can yield much better results (e.g., when the offering of your store is still the cheapest option or if the product is not available in stores of your competitors).
How does Dynamic Pricing and repricing work?
- First, you have to determine the products for which you want to use dynamic pricing.
- Then, you have to specify the rules according to which the prices are to be set (see below for some examples). You can define different rules for different product categories, sales channels and locations.
- Based on data collected from the market, ERP systems, etc., the system will propose prices for your shop. You can choose to have your prices changed automatically based on Dealavo calculations, but you can also require that every proposed change be approved before it is applied to the sales channels.
- It is also important to follow up on the results of your actions – you might want to check if the rules you use to define the prices are optimal. You can also test various repricing rules.
Which pricing automation rules can be used?
The rules for automatic pricing frequently depend on the nature of the particular industry, company or sales channel. Below, we have provided examples of the most popular rules:
- TOP 3 on the particular platform – use this rule to be included among the first 3 offers in a specific sales channel, e.g., Google Shopping.
- 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.
One of our clients is an online shop operating on the highly competitive market of Consumer electronics goods. The Dynamic Pricing platform can optimise the prices to make sure that our customer’s products are always among the 5 cheapest available offers at Amazon, as long as the margin is not lower than a specific percentage. If this rule cannot be met, a different rule is used, ensuring that the product is not the most expensive product on the platform (in this case, too, there is a specific limit).
Initially, our client applied this rule to only one product group, using different rules for other categories. Thanks to A/B tests of repricing rules, however, the client found out that the described pricing method provided the best results, and they decided to use them for a wider range of products.