Traditional pricing is set either based on the cost of production or on the price that competitors are charging. This ancient method has been slow to shift into the new and fast paced online world that we live in today.
Dynamic pricing is when a company changes their pricing to match demand and supply. Whether we like it or not Dynamic Pricing is everywhere. Hotels, Airlines and even Amazon are changing their prices by the minute to reflect current market conditions.
What all these have in common is that they’re internet based companies. Traditionally, Offline retailers pricing has remained static whether there’s 1 or 1000 people in store, although this is about to change!
Transitioning from static pricing to dynamic pricing overnight would be a struggle however, as it requires investing time in both hardware and software to be successful. Below are some of the keys to success.
It’s impossible to run dynamic pricing in a store that doesn’t have the IT infrastructure in place. It’s all well and good having the variants of pricing in the pricing engine but if the store itself can’t pick up on real time events then these prices are useless. The more sensors in store the better, picking up on things like footfall, weather conditions, social trends and events locally will yield the best results.
AI & ML:
Both are essential for Dynamic Pricing to work, rule based algorithms can only take you so far, relying on human input isn’t scalable. There needs to be automation in place that can cross reference the data streams to display the right price at the right time. Machine Learning can help improve the system over time fed with historical data that is collected and will show good results.
Dynamic pricings main benefit is increasing the bottom line. Capitalising on real time events by increasing the price by a few % can lead to huge increase in a company’s margin.
By linking in with stock management tools, if a product is soon to be out of date the pricing can be dropped to incentivise customers to purchase. On the flip side retailers can maximise on high demand that is in short supply, using flexible pricing the cost of a product can be increased just before it sells out, generating bigger returns.
The customer is always looking for the best deal and by implementing a Dynamic Pricing model your prices can remain consistent 95% of the time (but ensure you are accounting for seasonal customers who may not be loyal you can capitalise on a specific event without alienating those who shop at your store week in week out.)
In conclusion, Dynamic Pricing allows retailers to be flexible and capitalise on opportunities presented. At the end of the day the market determines the price and dynamic pricing is just a tool to allow this to happen at scale!