Dynamic Pricing

Online stores should consider dynamic pricing models

Dynamic pricing is a hot trend among eCommerce businesses. By using algorithms to shift the price of an item based on supply, demand, purchase history and other factors, online stores can adjust their prices to target the right cost for the right user.

resources-jp-blog-dynamic-pricing-425x200Pursue personalized price points
Econsultancy reported that implementing dynamic pricing models can improve profits by an average of 25 percent and increase gross margins by 10 percent. One of the strategies the source recommended was implementing peak pricing, where products are priced to reflect high demand or low inventory, a plan that requires a robust order management system with real-time inventory visibility. 

Tailoring the purchasing experience to different consumers can help online retailers interact with their audiences and drive engagement, perhaps giving a discount to new customers or offering early access to a new product to those who've purchased that brand before. 

Customers expect personalized shopping, according to a report by AgilOne, and dynamic pricing strategies are a powerful tool to shape a customer's eCommerce experience, and intelligent online stores know how to use it to their advantage. 

The plane truth
Dynamic pricing is not new, and it's not a fad either - dynamic pricing models can pay off in big ways. Delta Airlines turned its entire business around in the 1980s after implementing a dynamic pricing model, NPR's Planet Money detailed. 

Bob Cross, a former Delta employee, said in an interview with the source that the company invested big sums of money in computers that would be able to better understand and set prices based on geographic and market trends - just like today's big data solutions - instead of the reservations team setting prices on a case-by-case basis. 

2.5 million price tags
Fast forward a few decades, and dynamic pricing models are everywhere, even if the customer doesn't notice. Concerts and sporting events are just a couple of the industries that have dynamic pricing as a norm. A report on pricing trends by Profitero found that while a brick-and-mortar retailer like Walmart had changed its prices more than 50,000 times in just one month, Amazon changed its prices a staggering 2.5 million times a day

Big data, bigger ideas
The Wall Street Journal revealed that Orbitz steers users toward higher-priced hotels based on the type of computer they're using. According to the source, Mac users generally spend more on hotels and book higher-rated hotels, so the company adjusted its algorithm to show the fancier hotels to users on OS X. 

However, it's wrong to think that just switching to Windows will lead to a steep discount on a hotel stay: Operating system use is only a small element of the variety of factors that lead to a sale. It's merely a notable example of the interesting ways in which complex pricing models in eCommerce systems can use data in unexpected ways. 

ECommerce platforms offer increasingly sophisticated ways for online stores to personalize their models to users. It's especially important to consider these options as the holiday shopping season begins in earnest and eCommerce websites start planning for 2016.