Dynamic pricing is a term which is more and more present on ecommerce manager´s vocabulary, but, what does it mean? How can we implement it in our business? We can define Dynamic Pricing as the mechanism used to set prices which may vary depending on offer and demand. This concept, known as well as price intelligence, has a clear goal: To maximise e commerce profits, adapting prices to market requirements.
The main factors to take into account for Dinyamic Pricing are clients interest on the product and main market competitors. To carry out a wining price strategy, we would need to know each product price in our competitors´, and in order to do so we can use a competitor’s price monitoring tool. With this tool we will know our competitor´s prices in comparison with our prices, and knowing our cost we will know what´s our room for manoeuvring
Actions to carry out will depend on our pricing policy, being:
-I am the cheapest Strategy: While our profit margin allows it, we will fix our prices slightly below our cheapest competitor. This strategy can be damaging on the long term running, as it reduces our profit margin, and if demand is not what expected, our income will decrease.
-I am expensive/ cheap depending on competitor: It’s a hybrid and maybe the most popular pricing policy. Depending on how relevant our competitor is and our position in the market, we will decide whether to be cheaper or more expensive than our competitor. This strategy rather conservative, will allow us to keep our margin without losing sight of our main competitors.
What are then the Dynamic Pricing Benefits?
-We will stick to a Price Strategy, keeping control on our margins and avoiding loosing competitiveness
-We will have a coherent price image towards our clients, avoiding having off market prices on certain products, which will transmit clients an incorrect vision of our pricing policy, avoiding being perceived as exceedingly expensive or cheap.
-We will take advantage of market opportunities. If competition run out of stock, demand is greater and offer is lesser, that would allow a price increase and the possibility of increasing our margin.
-We will compete on equal conditions: Distribution giants such as Amazon, use Dynamic Pricing from the start. Now we could watch their prices and determine what´s our pricing strategy.
What do I need to invest in order to implement Dynamic Pricing in my ecommerce?
The goal of a Dynamic Pricing software is to maximise the ecommerce benefit, so cost will be associated to expected return on investment, making the price of the tool profitable and empowering benefits. If we increase the price of those products where we are too cheap, our margin will be increased and if we reduce the price of those products where we are too expensive our sales will increase.
Applying this optimization to the whole catalogue may represent making adjustments up to the 40% of our references, increasing the benefits of each one of them by setting a competitive price. For all those reasons, the cost of the implementing the tool will be paid back by the ROI.
We invite you to a free evaluation of our Competitors price tracking application, an indispensable tool for the tedious task of price management.