In this blog, we will explore:
- What is dynamic pricing?
- Examples of dynamic pricing
- What are the types of dynamic pricing?
- What are the pros and cons of dynamic pricing?
- How does dynamic pricing boost 5x sales?
What Is Dynamic Pricing?
Dynamic pricing works on one single principle – real-time demand. It is a strategy that offers you flexibility in determining your prices for goods or services. Machine learning, algorithm, consumer behavior, demand, supply, market forces, everything has a role in this real-time pricing strategy.
It is not one of those strategies that will work for every business around the world, but it does work magnificently for some common institutions or enterprises like:
- E-commerce businesses
Many online retailers understand that market demands, competitors’ pricing, conversion rates, and other market conditions affect the pricing of your products. In layman’s language, dynamic pricing is all about a chain reaction and having flexibility while determining the price of your products. Let’s look at some examples and know-how well-established brands leverage dynamic pricing for their business.
Examples of Dynamic Pricing
Here is a list of established brands that use dynamic pricing to grow their online business and keep themselves at the top of their games.
Repricing isn’t a problem for Amazon. On average, it adjusts its prices every ten minutes. That is why one minute the prices are too low, another minute prices can surge, or a lightning deal is there to make the day.
Zomato often raises prices or delivery charges during rush hours when there is too much demand and too little supply. But it is excellent for wealthier customers, as the brand will meet their market, but a customer with limited funds will look for an alternative.
In 2013, the app became popular to raise the prices of taxis 8x in New York. Of course, this strategy backfires, and lots of people lashed on Uber’s price policy. Lesson learned, and now Uber has set a cap on the high prices of their surge pricing strategy.
A significant e-commerce retailer has been using a flexible pricing strategy for the past 9 years. Walmart changes its prices more than 50,000 times per month. The company has recorded a 30% increase in global online sales.
Are you ready to book yourself a holiday in paradise? Well, Airbnb is the place for you. This holiday rental platform uses a dynamic pricing model to meet the fluctuating demands of its customers through a third-party hosting platform.
What Are The Types Of Dynamic Pricing
Dynamic pricing requires a personalized approach to fit the needs of each company. Choose the best type of dynamic pricing considering the stage of your business and the type of customers you aim to reach. Have a look at some of the most popular dynamic pricing models:
- Segment Pricing
Popularly known as price discrimination, it helps you segment the price of your product or service differently for different customers. You may not find this fair at first glance, but it helps provide top-quality service and meet the ends of the supply and demand chain. The segmenting decision depends upon location, demographic information, and more.
- Peak Pricing
On any occasion, you will see a hike in the price of certain goods and services. Why do you think this happens? There is an increase in demand for that particular commodity, but there are few resources to meet the demand. Due to imbalance, the price of those products or services rises – Uber surge is the perfect example of peak pricing.
- Time-Based Pricing
Have you heard of happy hours? That’s the exact model of time-based pricing. It’s all about offering a certain price for a specific period. This module is popular in industries where the demand for commodities or services keeps changing or when a special offer or discount triggers your customer’s purchases. E.g., When companies launch new collections or fresh arrivals in their stores, the price for old supplies drops.
- Penetration Pricing
If you are new to the market and want to make a niche for your product or brand, then penetration pricing is the model for you. Initially, companies offer lower prices than their competition to attract more customers. But as the business gets pace and reaches a niche audience, brands can start increasing the cost of their products until it goes market rates.
What are the Pros & Cons of Dynamic Pricing?
Today many businesses are leveraging the power of dynamic pricing strategies to grow their business. The following pros and cons will help you realize if dynamic pricing fits your business or not:
Pros of Dynamic PricingRegister with Builderfly
Getting The Right Overview Of The Market
The building block of a great dynamic pricing strategy is all about knowing your customers. You need to know who they are, what their tastes and preferences are, and more. With these insights, you can ideate the next big trend and the personas of your customers to provide better products and services to them.
Increase In Revenue
Dynamic pricing strategies can better understand your customers' shopping patterns, preferences, and limits. All this will help you create a more accurate pricing strategy for your business and give you an advantage over your competition. Better insights will help you know your competitor's strategy and dominate the market in the long run.
Allowing Price To Reflect Demand
More demand, less supply = Increase in price and vice versa. Thus, to boost your supply and demand, you have to decrease the cost of your product. Once you have made those adjustments, it is good to reflect the additional work required to get them on the market.
Create Higher Level Demands
At times you have open seats in airplanes, theaters, hotels, and more places, which means you are missing out on generating revenues to all these places. But if you sell these vacant open seats at lower prices to your customers, you can still reap some revenue and maximize your profits in that specific time.
Cons of Dynamic PricingRegister with Builderfly
People hate discovering that someone else bought an identical product for half the price. They feel taken advantage of and lose out on their loyal customer base at times. For example, Uber's surging prices during peak hours led to many customers switching to a different cab service or transportation.
Price Wars In Market
Suppose you have decreased the price of your products. Your competitor is bound to lower the cost of the products. Why? If not, they will lose out on their business. This will definitely start a price war which is good for customers but not for your business.
A lot of customers use the internet to research the products or services they are interested in buying. If they find the price higher than expected, they switch brands and purchase their products from them. Thus, it is essential to have a loyal customer base to sustain your brand.
Gaming The System
Savvy customers know that their sellers watch them and get more information about them. They know if they go after a particular item, then the cost of that product might increase. Thus, they have evolved their product research tactics by going to incognito mode to put a cap on the information they share in the process.
How Does Dynamic Pricing Boost 5x Sales?
Now you have a clear idea about dynamic pricing. Thus it’s time to know how it can help you boost your sales and fuel your business. Here is a little sneak peek that will help you understand how dynamic pricing will benefit and grow your business into a brand.
Start with initial pricing
If you are new to eCommerce, you must share doubts and complaints with the dynamic pricing strategy. On the other hand, dynamic pricing allows you to play your cards right. How? You can utilize the industry’s recent pricing standards and consider adopting the same to generate profitable margins.
Combine human intelligence with e-solutions
To achieve success in your business, you must apply human intelligence to your e-solutions because you cannot avoid problems in business. Thus you need to use your human intelligence to solve problems and make decisions to help your business grow.
Be flexible with your strategy but not with your end goal
Every business runs to be profitable, so even though you can be flexible on your pricing strategy, you must ensure that you don’t jeopardize your profit margins. Thus, make sure that you never set your prices too low, even when you are in a price war with your competitor.
Adopt a holistic approach
Ensure that you do not obligate yourself to a particular price point when using a demand-based pricing model. You must target a price that your customer is willing to pay for your product but is profitable for your business too.
Normal is boring! Do what is best for your business
Knowing the recent pricing trends in your industry or products similar to yours will help you make better decisions. You must understand that every company has different needs, so make sure you take care of production cost, customer acquisition cost, and more when determining a price for your product.
Implement Price Differentiation
Your customer personas can help you in setting the price of your product. How? Different customers have different needs and like to spend a particular amount on a commodity. So if you want to attract all these different personas to your business, you can offer different prices based on various versions of a given product.
Optimize your value metrics
By creating and optimizing value metrics for your business, you can charge people differently based on their usage of your service or products. This model works very well for services like email marketing, DIY ecommerce stores, and more. In this, you can introduce a different price for a different persona.
Offer discounts and reward coupons
When offering discounts and coupons to your customers, remember not to go overboard. Moderation is the key. You shouldn’t provide excessive deals or coupons as it will not help you generate revenue. But, you can give little incentives and perks to your customers to increase your sales.
Always test your prices
You must test the water if you want your products to swim. You can choose different prices for your product and see which one works best for your customers and business. This way, you will not turn your customers away or hurt your profit margins.
Be authentic and transparent
Even though many companies are using this pricing strategy to remain flexible, it is essential to be transparent about how it works and why you are using it. Otherwise, the brand could suffer a PR catastrophe.
Conclusion – Boost Sales with Dynamic Pricing
Now you know how implementing a dynamic strategy in your ecommerce business can work for you and make your business profitable. However, you must research to gather information and see the industry trends better. You can also see if your competition uses the same pricing strategy and figure out what prices you can offer without hurting your bottom line.
Dynamic pricing can help you reach customers on all grounds and balance demand-supply. So if you want to unfold 5x more sales in your business, adopt the model today! In the end, it’s all about having profits, driving more sales for the company, and continuing the legacy.
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