The idea of dynamic prices is as simple but potential: adjust prices to demand. Dynamic pricing strategies are not new, since the 1980s airlines have used this way of fixing prices for their tickets. Of course, we must not forget that these pioneers of dynamic prices defined according to the demand worked with computer systems very advanced for that time.
A dynamic pricing strategy for an ecommerce starts from the same source, that is, react to demand to modify prices to maximize sales and profits at the same time.
But in the digital environment there are two major differences with those years prior to the internet era: real time and competition.
Understanding demand to offer the most competitive prices on the market requires immediate action, in minutes. We must rely on dynamic and flexible catalogue management tools that allow for simple and immediate modifications.
Immediacy and competition
Immediacy is one of the keys to dynamic pricing strategies, and many retailers have incorporated this practice into their online sales management. A significant case is that of Wallmart, the giant American supermarket, which with a catalogue of tens of thousands of references can change its prices up to 50,000 times a month.
Another key to these strategies is competition analysis. It is not enough to adjust prices by the seasonality of the demand or even by the traffic of visits to the web. A dynamic pricing strategy needs to understand competitive prices to create a competitive and attractive offer for users. For this you have to use price intelligence technologies and monitor the competition in real time.
These price intelligence solutions are essential for a digital retailer because they analyse and extract price information from other digital competitors to compare with their own prices. With this information, an ecommerce has a complete scenario to manage its prices to give the best offer to potential customers.
Many retailers use price intelligence technologies to dynamically manage and react to competitive moves immediately, with dynamic pricing. Best Buy and Amazon for example, are direct competitors in areas such as consumer computing or mobile telephony. Both can change prices up to 10 times in a single day, looking for the optimal combination of prices that fits into their competitive environment and fits the online demand.
Responding to the demand of users in an environment that competes for prices is a challenge. But with the right technology, dynamic pricing has great benefits: being competitive 24 hours a day and 365 days a year.
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