Standard pricing strategy vs dynamic pricing strategy

Standard pricing strategy vs dynamic pricing strategy

11/04/2021 - Dynamic pricing

The constant evolution of digital buying and selling models makes it necessary for online retailers to revise their pricing strategy.  Dynamic pricing strategies make it easy for the retailer to adapt to new purchasing trends and promotional periods throughout the year, such as Black Friday. If you still have questions about why a dynamic pricing strategy is essential for your business, and how it is different from standard pricing, we will reveal all.

Dynamic or ‘customer centric’ pricing

Unlike standard pricing strategies, dynamic pricing can be said to be ‘customer centric’ pricing. In other words, prices are focused on adjusting to the needs and demands of the user. Today’s consumers have become more proactive, thanks to new online channels used to access the stores and products they want. Searching and comparing options is even more important when online shopping. Online retailers are aware of this. They generate a broad, almost infinite range of offerings that make strategy innovation difficult. It tends to be limited to new product offerings with different capabilities or in unique user community environments. 

Users are setting the pace of the market, making their needs known. Therefore, e-commerce sites have moved up a gear by automating processes and using new techniques to increase competitiveness, such as smart data

Why move from standard pricing to dynamic pricing?

One of the most widespread myths of dynamic pricing is that they make businesses lose control of their strategy. Nothing could be further from the truth. Countless success stories gathered by online marketers show that this strategy positively impacts e-commerce and other channels.

Dynamic pricing strategies optimise your business performance via four key factors, helping you to adapt to the new online consumer buying model.

  1. Demand. You can make sales forecasts which will meet users’ future demands, by knowing the seasonal peaks in sales volume.
  2. Stock. Understanding forecasts helps you better manage stock and resources in your warehouse. If you expect an increase in sales, you can store or manufacture a higher quantity to supply the market without entering stock breaks or having excess units.
  3. Competition. What if my competition has a much higher or cheaper price than me? Sometimes it’s hard to have to analyse each of your competitor’s prices to determine yours. Reactev allows you to specify whether you want to exceed or undercut your competition’s price, and by how much.
  4. Profit margin. You can achieve high sales volume, but your business is unlikely to be profitable if your profit margin is low. Therefore, one of the most critical points is to set a minimum profit margin to find the optimal price. 

Through these factors, an optimal price can be calculated on the spot, avoiding additional costs, and taking advantage of the opportunities offered by the market.

How to make changes in dynamic pricing more agile

How to make changes in dynamic pricing more agile

Dynamic pricing strategies use machine learning, a derivative of artificial intelligence that learns from what is happening, to improve your forecasts and suggested optimal prices. To optimise your pricing strategy, you need a tool that speeds up calculations and does not rely on a person to change them by hand. This allows you to avoid human errors and save time. We should not forget the large number of references that an e-commerce site can acquire.

Pricing tools like Reactev are the perfect match for e-commerce sites to make massive price changes, automatically or semi-automatically. Here’s the information you’ll need to get started: 

  1. Allowable Margins: Required to set the maximum and minimum limits that your prices should not exceed.
  2. Price sensitivity: Test the optimal price for your products with the pricing simulation tool.
  3. Demand Curve: Recognises when peaks and troughs in demand occur and allows prices to be adjusted to maximise profitability on each sale.

Setting the most appropriate rules for your product sector and the potential buyers’ expectations will allow you to both improve sales volume and optimise yield from your promotions. After all, the goal is to maximise the profit on every sale.

Category: Dynamic pricing

Tags: ecommerce, pricing

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