Price: the topic that may very well consume most of your mindshare as an online seller. Between ensuring profit and enticing customers, there never seems to be a happy medium. Is it really feasible for your teams to monitor competitor price changes and update your own in real time?
Luckily, there’s an option that combines the best of both worlds.
As supply costs soar and consumers go hunting for deals, these dynamic pricing tricks will help you stay competitive while keeping your team flexible.
What Is Dynamic Pricing?
Dynamic pricing is a strategy that modifies prices based on current market demands. It is sometimes called variable pricing, surge pricing or demand pricing because it capitalizes on changes in supply and demand in the moment.
Consider a ride-share service that increases prices during peak travel times or a grocer who lowers prices when produce is in season. Unlike static pricing, dynamic pricing in e-commerce helps you maximize profit.
It seems simple, but the larger your catalog, the more difficult it becomes to set prices. Plus, dynamic pricing doesn’t always apply to every commerce sector, especially those where customers expect fixed prices, including restaurants or flat-rate shipping.
What Are the Benefits of Dynamic Pricing?
E-commerce has played a huge role in the emergence of dynamic pricing, considering the number of choices consumers now have, the larger pool of customers and the online buying habits of digital shoppers. Retailers choose dynamic pricing strategies because they:
- Allow for nimble decision making. Instead of relying on team members to manually enter price changes, automated repricers adjust values based on real-time stock availability, changes in shipping and consumer demand or product seasonality.
- Maximize the potential for profit. Whether you’re experiencing an overstock and need to reduce prices to entice sales or your product is a hot item for the upcoming holiday season, dynamic pricing adjusts automatically to bring in the most profit.
- Provide greater industry insight. Dynamic strategies give you deeper insight into competitor pricing and industry changes as they occur, helping you move more nimbly and make better long-term decisions.
- Continue to bring in profit during downtimes. Weak economy? Suffering the effects of inflation? Unlike products with fixed pricing that consumers simply stop buying, dynamic pricing allows you to recoup sales with lowered thresholds and discounts.
What Are the Different Types of Dynamic Pricing?
Dynamic pricing is not a one-size-fits-all strategy. Different forms allow different companies to choose a method that meets their needs.
Consider the old joke of umbrella prices that increase when it rains. Time-based pricing accounts for changes in demand based on timing, including rush hour ride-share surges, Black Friday pricing discounts or other limited-time offers.
Under this method, different segments of customers receive different pricing for the same products. You may choose to segment customers by loyalty and membership or even how much they value your products. For instance, sporting event tickets may offer the same seat, but pricing depends on the teams playing, their performance and how many fans they have.
Before engaging in segmented pricing, consider factors like customer demographics, location, seasonality or even the product’s format. For example, customers may be willing to pay more for a physical copy of a book than a digital one.
Like time-based pricing, peak pricing adjusts product values based on hourly, daily or even seasonal fluctuations in demand. But peak pricing focuses specifically on demand surges, when there’s congestion and higher prices are needed to reduce the mad dash. Utility companies sometimes charge peak prices in months or seasons when energy usage is at its highest, helping curb overconsumption.
What Are the Top Dynamic Pricing Strategies in E-Commerce?
1. Use an Automated Repricer. Automated repricing tools adjust your prices to remain competitive and align with your goals — without manual monitoring. Choose from multiple options based on your intended outcome:
- Want to win more of the buy box at the highest price possible? A marketplace repricer uses algorithmic pricing technology to help you win the buy box or best offer position at the highest possible price.
- Want to focus on specific goals? A velocity repricer automatically adjusts based on the goals you set — whether you want to extract more margin on fast-selling products or lower prices when sales are slow.
2. Constantly Monitor Competition. Searching for a single product can yield a dozen or more results, and if your listing doesn’t rise to the top, it’s unlikely to be seen, let alone clicked.
Staying ahead of pricing trends requires competitive data analytics that are easy to grasp at a glance. For this reason, visualization dashboards and benchmarking tools are key. The right analytics tools will provide SKU- and ASIN-level insights into how your pricing stacks up to the competition in straightforward, uncomplicated reports.
3. Look for Opportunities to Bundle. Bundling products into single-SKU offerings isn’t just a best practice for competitive pricing. It’s also a great way to differentiate from the competition.
There will be plenty of times when a consumer is shopping just one of your items. But if they see your promotion for an even better deal — a discounted three-pack, for example — there’s a good chance you’ll land an even bigger sale. By grouping popular products into competitively-priced packages, you can inspire consumers to stretch their wallets.
4. Centralize Marketplace Management. Depending on how many marketplaces you sell on, managing multiple accounts makes it incredibly difficult to streamline your pricing strategy. How will you know when your Amazon price becomes higher than what’s on eBay or Google Shopping? The lack of a centralized view can lead to gaps in data, inconsistencies in pricing and delays in problem diagnosis.
Instead, consolidating your multichannel efforts into a single, streamlined platform gives you total visibility over your entire e-commerce program and prevents small issues from becoming big problems.
Are There Downsides to Dynamic Pricing?
Dynamic pricing that results in lower prices is rarely met with criticism. But price changes that discriminate or take unfair advantage over customers are poorly perceived — and may result in substantial losses. Variable pricing works best when it’s clear why you’ve made adjustments and consumers have come to expect a certain amount of price fluctuation.
You may consider applying smaller price hikes or only implementing dynamic pricing to some products and not others. That way, customers can better set expectations for your products and typical price ranges.
How Can You Implement Dynamic Pricing?
Between optimizing listings, managing errors and fulfilling orders, there’s little time left to scrutinize pricing on hundreds or thousands of SKUs. With a little preparation and a lot of automation, building a competitive pricing strategy for each marketplace can be a hassle-free process — especially when you have expert-led guidance.
ChannelAdvisor Managed Services helps you set proven dynamic pricing strategies that support your goals and give you time back in your day. Plus, we’ll show you how to implement and adopt an automated repricer to stay competitive in the marketplace.
Contact us to learn how Managed Services can help you maximize profit with minimal pricing effort.
Editor’s Note: This post was originally published in February 2020 and was updated in November 2022 for accuracy and comprehensiveness.