By Arie Shpanya, Wiser
There’s no way to avoid it in retail these days: Big-box retailers are taking control of their pricing and driving the market with a strategy called dynamic pricing. To define it simply, it is a pricing strategy that features price fluctuations based on market and internal factors, and it is undeniably growing in popularity.
Here are the top three reasons why dynamic pricing is more than just a trend in retail:
1. It Contributes To A Strong Business Strategy
Traffic, conversion rates and demand all vary based on the time of day, season and more. Dynamic pricing is a way to test the price elasticity of demand and has the potential to make a huge impact on revenue and profit.
For example: If a retailer is selling a toy that’s been labeled the hot item of the season, they can probably bump up the price and enjoy profit they would have otherwise missed out on. The opposite is also true. If you’re carrying a toy that’s no longer a top seller, you can lower the price to increase sales and move inventory.
2. It Has Proven Useful In Many Industries
Dynamic pricing makes sense in many areas, such as the sports industry. Many teams have started to use dynamic pricing while selling tickets. By increasing ticket prices before a big game, many teams have boosted revenue.
Amazon is one of the retail giants leading the push for dynamic pricing. While Amazon might make it seem like dynamic pricing is just about lowering prices to be hyper-competitive, price increases are just as important. Take the airline industry. Some days are popular for traveling, while others are slower. By dropping prices on the slower days, airlines are able to fill flights and make the most out of their existing routes.
3. It Is Used By Retail Leaders
Dynamic pricing provides plenty of benefits for retailers. Amazon and Walmart are two well-known retailers that use dynamic pricing constantly. Amazon changes prices as frequently as every 10 to 15 minutes on many of its products, and its sales rose by 27.2% in 2013.
Walmart changes prices about 50,000 times per month and its online sales eclipsed Amazon’s, with a 30% increase in 2013. Retailers like Amazon and Walmart use dynamic pricing because it allows them to stay up-to-date on competitor pricing, pricing trends and avoid getting left behind the competition.
However, dynamic pricing can be difficult to manage. Because of this, many retailers have turned to technology to automate what was once a manual process.
Forrester Research estimates that price optimization software improves gross margins by 10% and can make a huge impact on sales and profit. To put any fears to rest, retailers using an in-house or third-party dynamic pricing software can set repricing rules to ensure that their pricing always matches their brand identity and never goes below cost. As an added bonus, there is no possibility of unwillingly engaging in a margin depleting price war.
Dynamic pricing is the future of pricing strategyfor retailers. The world has experienced incredible technological advances over the past decade, and dynamic pricing is certainly one of the most monumental. It is becoming the standard in the retail industry and the future seems bright for this trendy strategy.
What are some other ways dynamic pricing can help retailers?
*Co-written by Angelica Valentine, Content Marketing Manager at Wiser.
Arie Shpanya is the CEO of Wiser, a dynamic pricing & merchandising engine for online retailers. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), as well as social media optimization, marketing strategy and multi-channel platforms.