Have you ever kept a product on wishlist and when you were finally ready to purchase it, it's price change? Sometime prices decreases adding some more to your savings while other times it increases making you rethink about your buying decisions.
This change in price can happen within few hours to days, depends upon product to product and field to field.
But why does it happen?
And how can big companies modify their countless product in one go?
And why suddenly the market price shifts in some hours?
Well this process happens because of dynamic pricing.
Never heard about dynamic pricing? Or don't know what it is?
No worries, this article have everything you should know about dynamic prices, from its basic definition to advantages-drawbacks or which industry uses it the most.
What is Dynamic Pricing
Dynamic Pricing is the technique of changing prices on the bases of external factors like demand, stock, competitor's prices, trends, etc, to make more sale while retaining your margin. Dynamic pricing can also help you to stay ahead in the business.
In other words we can say that dynamic pricing makes sure that a business alters its product prices when the dynamics of market or we can say when trend shifts.
It makes sure that the business is up-to-date about the market changes making decisions accordingly.
How Dynamic Pricing Works
Dynamic pricing mainly works on basic economics model, supply and demand model, where if the business have stocks of good they can sell it on the lower cost while if the stock is scares then they will be sold in higher prices. While demand also plays an important role in fluctuating prices like if demand is more than prices will most likely to be increased than when demand is less.
Different business give different priorities to the factor, for example a fashion industry the prices of the product fluctuates in demands while in food industry the prices can differ from time to time.
How to Implement Dynamic Pricing
There are mainly two ways by which a business can implement Dynamic Pricing on their products. They are as follows :-
1. Manual Repricing :- In manual repricing the business checks the market dynamics from time to time and make changes accordingly. This technique can work for small business or where there are limited competition. Or when the business is at the initial stage of development.
2. Automatic Repricing :- There are several platforms in the market which provides the facility of Dynamic Repricing. These platforms analyze market for business and reprices the product according to the various factors with expert and experience professionals which can save lot of efforts and time of the business.
There are many leading many platforms who provide automatic pricing tools with other price optimization tools, some of them are listed below if you wanted to try the services:-
Botscrapers
Prodfinity
Pricify
Competera
Importance of Dynamic Pricing
Enhances Competitiveness
In today's market trends changes in a snap, so does prices and profits. These frequent changes in the market and the taste of consumers make sure that all those business who are not ready to adapt the trends and changes will collapse. And in this process dynamic pricing helps the business drastically as they adapt the changes on the prices according to the market, which makes business more competitive and growth oriented.
Maximizes revenue
Right price at the right time on right product can help the business get the most out of the trends by increasing sales as well as making space for your brand on the market place. If dynamic pricing used correctly the business will get fair chances to get recognized by their targeted audience as well as gain loyal customers which will eventually increases the revenue.
Adapts to demand shifts
Dynamic pricing is basically works on supply and demand model to make sure the customers are satisfied while business retains their margin. As price is directly proportional to demand, which means that when product is in demand the prices of it will be high in comparison with when the demand is less. Business who implements dynamic pricing will be profited at the era of demand.
Improves inventory management
Have you ever got an order after the event for which you ordered it?
Obviously its on of the frustrating thing as a consumer spends hours and hours to select a product and then they don't get it on time. This can occur due to inventory mismanagement and leads to customer dissatisfaction or even worse business goodwill.
Businesses who uses dynamic pricing can avoid these situations as they can increase the prices when their sales when there inventory becomes scares and lower the prices when the inventory is again refilled.
Automates pricing strategies
Prices is one of the most important factor of business's success but its not the only one, there are tons of other factors business needs to pay attention and in addition to that when you get the to handle the frequent changes of the prices in the market can becomes very difficult.
But with frequent changes dynamic pricing model also brought the services, as there are several platforms available which can implement dynamic pricing on your product for you, reducing manual efforts and error.
Respond to competitor pricing changes
In this cut-throat competition, business needs to be competitive more than ever and providing competitive pricing is one of the most important part to survive in current market. Not changing the prices with trend shift is like serving your customers to your competitors on silver plater. So dynamic pricing helps the business to retain customer with right pricing.
Advantages and Disadvantages of Dynamic Pricing
Everything in this world is like a coin, like the coin has two sides so does all other things. And dynamic pricing is no exception, so below are some pros and cons of dynamic pricing.
Advantages of Dynamic Pricing
1. Revenue Optimization
Dynamic pricing gives the liberty to business to change their product prices in real time. Mainly it follows the price and demand model in which prices are directly proportional to demand. Which means when the demand is high price will raise and when demand is low prices will reduce to lure more customers during low pacing
2. Market Competitiveness
Automatic pricing adjustments ensures what business always provide competitive prices. While continuously monitoring competitors prices and altering the prices whenever the market shift happens.
3. Customer Segmentation & Personalization
Dynamic pricing let the business give different prices to different segments of customers. These segments can very from place to place or customer to customer. For example,a business can giver better offers to their loyal and repetitive customers while normal price to the first visiting customer which can motivate the user to be loyal to their business.
4. Encourages Consumer Buying Behavior
Reasonable prices at right time let your stock slide like a hot knife on a butter, but when is the good time to offer discounts and when not used to be a challenging task. With dynamic price you can set your prices effortless to increase sales and attract new clients.
Disadvantages of Dynamic Pricing
Customer Dissatisfaction and Loss of Trust
If the prices of a product changes frequently or between a very short span then it can frustrate and confuse the consumer, leading then to give a second thought about the purchase. So business should not over use dynamic pricing as it shows a kind of instability from the side of brand.
2. Complexity in Implementation
It is not possible for a layman to set up the dynamic pricing and gets the best results in just one day. Setting the rules for dynamic pricing require the market experts and understanding the behavior with customers combined with other factors. In other words the business needs to create an strategic and sophisticated algorithms to make dynamic pricing.
4. Risk of Price Wars
Low prices are the best way to attract potential buyers and many businesses are adapting this technique. And if everyone started using the dynamic pricing tools and keeps on lowering their prices for being more competitive than it can leads to price wars between the market. Because of which all the player of the market have to set prices in loss to survive market which can lead to the depression in the economy.
5. Consumer Backlash on Surge Pricing
If prices are increased noticeably during high demands or on the time of need then it can anger the consumers or they can feel unfairly charged or taken advantages of during the time of needs. If this continues there are chances that the consumers boycott the business.
6. Dependency on Data and AI
Now a days everything relies on real-time data which includes dynamic pricing too. If there is any system crash or failure in collecting data can affect in the accuracy of data. And as everything is online today, the privacy of data can also be invaded without the permission of owner of business.
7. Potential Loss of Price-Conscious Customers
Loyal consumers are important for the survival of the business but new customers are the essential for the growth of the business. Without new consumer expanding the business is not possible. But in this competitive market getting new consumers are so hard and when business increases the product's price during high demand this can lean consumers towards competitors products.
8. Difficulty in Predicting Consumer Behavior
There are very few proportion of consumer now-a-days who prefer to buy products at increased prices, most of them waits for the decrease of prices so that they can make a purchase, which can disrupt the sales patterns and affects business negatively.
Industries We Worked With
Dynamic prices was being used from decades in different ways in the market but it recently got attention of the big industries. Below are the few industries where we implemented dynamic pricing, they are as follows :-
Airlines and Transportation Industry
Ever wanted to go back home during festive season or planned a trip during vacation time, then you would have noticed that the normal services are also at premium prices. Due to high demand and at the peak time airlines and travels increases there prices to gain more profit and during low pace they reduces it to attract and motivate customers to avail the services.
We made sure our customer prices their products and services right so that they can save margin and focus on future growth.
Fashion Industry
Trends changes in every season is a common thing these days and so does alteration in the prices. Ever bought a product when it is expensive and then watch its prices diminishing after few months when its demand reduces. Huge clothing industries and fashion brands uses dynamic pricing to make profit during the trend shift and then sell the products cheaper to clear their stocks.
Keeping up with fashion trends is a tricky task, but not with us as we make it work with minimal efforts.
E-Commerce Platform
E-Commerce platforms are the biggest user of dynamic pricing right now. Ever saw modification of price on a product at amazon and suddenly all the other e-commerce platforms sets their prices accordingly, regardless if prices are high are low because they are using the automatic dynamic pricing which updates the prices during real time.
The E-Commerce industry is growing every minute and so is the competition, but our clients had our back, to help them work through the low pace with right price and right margin.
And the list goes on and on. We helped hundreds of companies till now and still helps them to grow. For more information click here.
Conclusion
After considering all the factors and parameters we can say that dynamic pricing is a very powerful and important tool in todays business, and can contribute its part in the growth and expansion of the enterprise.
But dynamic pricing can also be the cause of brand devaluation and customers dissatisfaction if not used carefully or over-used it.
As sometimes customers get frustrated with frequent changes in the product and can choose competitors with more stables prices.
So we can finally conclude that dynamic pricing can be proved a beneficial if used wisely and in balanced way with consideration of customer's buying behavior and industries factors.
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