We live in a constantly changing market, why should your prices be static?

That title’s kind of a big statement, but it’s true. Customers face an array of prices for identical items from store to store. But why?

Well, some stores are trying to beat competitors’ prices, and others are raising prices based on an increase in demand.

Not only that, but no two retailers offer the same value through shipping, customer experience, and other services.

By beefing up their prices to match demand, retailers are maximizing their profit and fueling competition in the market.

Online retailers can raise and lower their prices strategically through a pricing strategy known as dynamic pricing

 

A smooth pricing pattern

Dynamic pricing allows retailers to set flexible prices based on current market demand. It gives retailers the power to change their prices as a response to external market factors, such as seasonality or competitors’ prices. 

Take ugly Christmas sweaters, for example. This time of year is prime time for them, and you know retailers like Urban Outfitters are going to be advertising the ugliest sweaters you can ironically wear at your next party. 

Here’s the downside, though. You’re not the only person who has ugly Christmas sweaters on their mind this holiday season.

Competitors are going to jack the price up as more and more people begin viewing their sweater collection on their website, and they know they’re going to make a killing off of the revenue. 

Now, this is merely a hypothetical example, but it holds a good point about dynamic pricing. If you know a product is getting a high volume of impressions, you can use dynamic pricing to increase the price!

If you were to visit a Wal-Mart, on the other hand, you would see plenty of sweaters like Urban Outfitters’, but probably at different price points.

But why? Well, Walmart’s lower prices are a tactic in their loss leader strategy -- one that Urban Outfitters does not engage in. This difference in pricing strategies between retailers can result in different prices across the market.

While they can both be successful in their own right, the right price for one retailer at any given time is not the same for another.

The variety in prices

Why do retailers carry nearly identical products at different prices? Well, they can differentiate their businesses through services that justify a premium, like fast shipping.

Not all retailers do this, though. Many take a low-price approach (like Walmart). But how does Walmart make sure it has the lowest prices? The answer comes from dynamic pricing once again. 

Retailers as large as Wal-Mart scan the competitive landscape numerous times a day to measure their competitors’ prices. Take Amazon, for example. Amazon has become a poster child for dynamic pricing, changing its products’ prices as often as every 10-15 minutes. 

Amazon’s constant reduction in prices kill its profits, but makes it very popular amongst showroomers (shoppers who visit a store to see a product, but ultimately purchase it online at a less expensive price).

Approximately 57% of consumers use Amazon as their showrooming benchmark of choice.

Don’t disregard discounts

I’ll be the first to tell you, if you’re trying to keep up with Amazon using dynamic pricing, you’re not going to have a good time (or a sustainable margin).

Luckily, there are other ways you can stay competitive without engaging in price warfare. By supplementing a dynamic pricing strategy with discounts and promo codes, you can have yourself quite the dynamic duo. 

Promo codes and discounts are another reason why there is no right price in retail. Your price may appear the same as a competitor’s at face value, but adding discounts and promo codes will give you a competitive edge.

Offering discounts can also drive traffic to your website, where you can upsell customers to make up for any lost profit that may come from the discount.

Remember, never upsell an item worth more than 60% of the original product value.

How online retailers can keep up

Checking for price changes across the web can be tedious, and leaves an ample amount of room for error. Not everyone has the internal resources of Amazon or WalMart, but many do have access to repricing software.

Repricing tools can help retailers respond to price changes in real time. There are plenty of changes in the market, but they are easy to respond to when your shop is online. Retailers that use repricing software see a 22% increase in revenue on average.

The ability to reprice and effectively improve conversions is proof that there will never be a right price in the world of retail. The market is constantly changing, and one way to stay on top of these changes is adopting a dynamic pricing strategy.

The market can be unpredictable and overwhelming at times, so make sure your prices are prepared for anything. 

How else can retailers keep up with a constantly changing market?


Contributing Writer: Brian Smyth

Image credit: Flickr

Ari Shpanya

Published 2 December, 2014 by Ari Shpanya

Ari is the co-founder of HomeShare and Zent , Graduate of the GSB Stanford Ignite program, and a contributor to Econsultancy.

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Comments (4)

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Christopher Dunne, Marketing at RepricerExpress

Great article explaining dynamic pricing with Christmas jumpers.

over 3 years ago

Ari Shpanya

Ari Shpanya, co-founder at HomeShare.com

Hi Christopher,

Thanks for your comment. Glad you enjoyed the article.

over 3 years ago

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Deri Jones, CEO at SciVisum Ltd

Thanks Arie.

One thing you've not commented on:

What impact does it have on consumer behaviour if they see prices vary alot: does it undermine trust in the fairness of the price that retailers set in general, and therefore may be actually teaching shoppers to price compare even more: with less brand loyalty as a result?

I guess this question may apply more to personalised pricing: which you didn't cover.

over 3 years ago

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Michael Bolton, Director Ecommerce Services at An Organisation

This isn't an article or blog its a blatant advert to promote a tool that supports a rather dubious practice.
Give me a john Lewis never knowingly undersold anyway than a retailer out for what they can get from me by hoiking prices up and down like a hookers skirt.
People don't just buy online based on price but on trust and a host of other measures.
This is a practice that will not do ecommerce growth or reputation any good - reputable retailers would do well to steer clear. The public don't like "Clever" tricks they like honesty & transparency.

over 3 years ago

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