In this fast-changing world where e-commerce and digitalisation have taken over the market, businesses can no longer rely on static pricing methods and techniques. With continuously changing trends, competitors frequently altering their prices and customers asking for something new, from time to time, dynamic pricing tools are proven to be a powerful solution that helps businesses to solve a lot of problems and let them grow and stay competitive in the market.
These days, competition isn't just about stealing few customers or taking the limelight with a new launch, but today market have cut-throat competition in which one wrong move can prove to be lethal for the business, while competitors are waiting for that one wrong move so they can eliminate another name from their competition list.
Between this competition where businesses are craving for the opportunity to grow while it is getting slimmer and slimmer with the increased number of competition, now is the time when businesses should create opportunities for themselves, otherwise it will be too late for them. And this is where a dynamic pricing tool can help and make the business growth effortless.
Wanted to know how dynamic pricing can help your business grow? In this article, we will dive deeper about the dynamic pricing tool and everything revolving around it.
But before we start, let's structure our article and discuss everything step by step.
What is Dynamic Pricing?
Before we understand what is dynamic pricing tool and how it affects businesses, we need to understand what dynamic pricing is in general and how long it has been in the market.
Well, dynamic pricing is the technique of altering the prices of the product according to the dynamics of the market.
In simple words, we can say that dynamic pricing is the technique where a business can change its prices because of some internal or external factor that might affect the supply and demand graph of the product and business.
Dynamic pricing is everywhere, from the stores having student products that decrease the prices of school bags and stuff to initiate more purchases or in the grocery store where prices of vegetables and fruits change during different times of the day.
So we can say that dynamic pricing is a very old technique which has been used for centuries, and to this date, businesses use the dynamic pricing technique to set the right prices and encourage sales, either manually or digitally.
What is a Dynamic Pricing Tool?
A dynamic pricing tool is a software solution that helps businesses adjust the prices automatically of their product or services, based on real-time data and a machine learning algorithm to calculate the right prices of their products or services according to the market conditions. But does allowing a machine to set your product's prices feel risky?
Well, we've got your back. With the custom rule setting mechanisms, business can set their rules, like capping the min-max prices or setting the profit margin percentage from COGS so that our tool calculates the prices, but the rules should be yours.
But what is the need for a dynamic pricing tool when it can be done manually? You must be wondering that, right?
Well dynamic pricing definition changes from time to time. A decade ago, dynamic pricing could mean changing prices of the products from season to season, but now, dynamic pricing means altering the prices of products whenever the dynamics of the market change. So now static prices, where prices remain the same over a long time, can't work; dynamic pricing continuously evolves to reflect market conditions.
Dynamic pricing tool consider multiple relevant factors like competitor prices on product same or similar to yours, demand fluctuations, customer behavior in different phases of the year, time of day, inventory status, and market trends to calculate the optimal prices of your products at any given time to ensure customer satisfaction and also maximizes your profit.
Key Features of a Dynamic Pricing Tool
There are thousands of companies and countless platforms which provide dynamic pricing services or dynamic pricing tool, but if you are new to it you must be aware of the key features to decide which is the better tools for you, so you don't spend money on any inefficient tool which would not only results in no proper result but can also be the reason for business downfall due to wrong pricing.
Let's discuss these features.
Real-Time Competitor Monitoring
A good dynamic pricing tool always keeps an eye on your competitors' moves, so even their slightest moves don't go unnoticed. A dynamic pricing tool which helps the user to monitor competitors not only ensures that your products are priced right, but it also helps businesses to understand why the prices are set and what the background calculation is.
In addition to that, it also helps the businesses to keep track of the competitors' prices and why your product prices have been altered or updated recently. This even helps the business to understand the market and trend shifts in the market.
Rule-Based Pricing Engine
Prices are considered the heart of a product; the right prices can make it a best seller, but the wrong price can lead you to lose potential customers. And handing the heart of your business to alter and modify according to their calculations, of which you have no clue on what factors the calculation is happening or on what basis or rules the prices are calculated.
A platform who understand these problems and hesitation of the business will surely provide an rule-based engine, which give the liberty for the business to set the rules for the calculation of their each and every product so that they can not only have the clue about pricing calculation and also can control the prices of their products according to their pricing strategies and planning.
Rules like "Always stay 5% lower than the lowest competitors" or "always set prices more than 10% of COGS", etc.
AI and Machine Learning
High-tech tools and services use AI and machine learning to make sure their software keeps learning by itself and doesn't need regular updates. And finally, AI is contributing to the dynamic pricing tool industry, too.
An AI-based dynamic tool can analyse your competitors and marketing data, understand demand patterns and demand elasticity of your business with the help of machine learning, so that the dynamic pricing tool can predict the right prices and maximise your revenue.
Dynamic pricing, which uses AI and machine learning, is not only future-centric but also makes reliable decisions, so you don't have to worry about the right prices of your products.
Price Elasticity Tracking
Price Elasticity is when the business changes prices and the degree of demand changes in response. If the prices increase a bit and demand drops drastically in response then the price elasticity of the product is very high; on the other hand, if after the drastic price increase, the demand still stays constant, then the price elasticity of the product is less.
A dynamic pricing tool measures how demand changes when prices fluctuates for your products. Understanding the price elasticity is very important for any tool that involves product pricing and understanding market patterns. Understanding price elasticity is essential for a dynamic pricing tool to make sure it changes the prices while considering the price elasticity of your product.
Dashboard & Analytics
Well, why does a business want to adopt a dynamic pricing tool then still doing it manually? The answer is very simple because the dynamic pricing tool is accurate and efficient. And one feature that saves a lot of time for a business is a visual representation of data.
The data you will read and understand after spending hours can be summed up in a bar chart or a pie chart for you, so that you can grasp the main information in a few minutes. Platforms that understand the importance of the time of their client try to provide the dashboards and charts as much as possible until there is a need for micro-analysis of information.
So, make sure before buying any dynamic pricing tool that there are enough visual representations of data to save your time in analysis and planning.
Omnichannel Integration
These days digital visibility is very important for business to grow and at the same time there are countless digital platforms to buy and sell product across the globe, like websites, apps, POS, and marketplace. So to maintain the prices of your product, you need a tool which can be integrated to multiple channels at the same time, so that you can optimize your digital visibility to it's fullest.
So make sure that the dynamic pricing tool you are opting can be integrated to multiple channels, so that your prices are competitive and optimized across the platforms, making your pricing strategy highly manageable and efficient.
Benefits of Using a Dynamic Pricing Tool
When understanding the features of dynamic pricing, it is also very important to understand why should you use dynamic pricing tool at the first place. What are the real gems you can find when you upgrade your business to automated repricing technique.
Revenue Maximization
Dynamic pricing tool help you to maximize your sales and profit margin. But how? You must be wondering. So let me solve this confusion of yours.
With setting the right prices which neither overpriced which means prices which are way to higher than competitors without any clear reason or underpriced which means prices are the lowest in the market which can tarnish the brand value of your business. So setting right price is very important to ensure the visibility on the e-commerce platforms which will eventually increases sales and revenue.
Inventory Optimization
Dynamic pricing tools helps you understand the demand pattern of your targeted market and make sure your inventory is not piled up with outdated products. And if it the case, the dynamic pricing tool can also help your sell of your piled inventory with discounts which is not really obvious but can attract a large number of customers.
In simple words, we can say that dynamic pricing tool ensures that your product price is competitive and right every-time, which attracts the customers, which result is constant inventory flow.
Better Competitor Positioning
In this impulsively competitive marketplace, changing prices once and twice in a day is not enough, now it's more like a fight than a business as if you don't defend competitors moves then they can kill your business. But no one is free to check every hour if your competitors changes the prices of their product or not, in another case it is not actually particle if you have thousands of products.
Dynamic pricing tool takes that burden from your shoulder of checking and responding every change of competitors. This automation in repricing process ensures better competitive positions in marketplace and sometime it can make a different position of your business in the market.
Personalized Pricing
Today no one can survive while doing the same thing, to grow and make a unique place of your business in the market than you should have something unique in your business. And dynamic pricing tools offer customer segmentation, where it provides tailored pricing based on your targeted audience behavior, location of your dealing and history.
So making personalized pricing strategy will feel like a piece of cake with correct dynamic pricing tool.
Improved Conversion Rates
No business can grow from repetitive orders only, to acquire more market ratio you should need to make more leads and convert those potential leads to customers. While there are many factors responsible for acquiring new customers, prices plays a very important role.
When a business uses dynamic pricing tool, then it can boost their customer conversion rate from right pricing strategy and applying competitive pricing at the right moment in the customer journey.
Industries Leveraging Dynamic Pricing
Dynamic pricing isn't just for e-commerce, all the business uses dynamic pricing intentionally or unintentionally. As it is a traditional technique to optimize prices and maximize profit at every phase of the business. Now a days many industries are adopting dynamic pricing tool to leverage there growth effortlessly.
Let's discuss about these industries and how dynamic pricing tool helped them to grow.
E-Commerce
E-Commerce is one of the reason, market realized the importance of dynamic pricing tool as in e-commerce it is more important to stay up-to-date every time. Retailers of online platforms use dynamic pricing to increase sales and always provide competitive prices to their customers. As in e-commerce we compete across the boundaries and time-zones, so a tool which can make changes even in the absence of manual resources.
Hospitality and Travel
Ever wanted to book an airplane urgently and realized that the prices are at the peak while same ticket would had costed you just few bucks if you book few weeks ago. Well this is how dynamic pricing works, dynamic pricing increases the price of a product or service when demand of it increases or when product or service is scarce.
And as these days there are platform which can helps you in the vacations planning for example booking tickets or reserving a suite in a hotel, etc. So now hotels and airlines uses dynamic pricing to adjust fares and room rates based on the demand, season, etc. For example during summer vacations or Christmas holidays prices of hotel rooms or airplane tickets skyrockets while you can buy them cheaper during working time of the year.
Ride-Sharing & Transportation
Ever tried booking Uber at the midnight and realized it cost almost double of what it cost for same distance in day-time. Well all the transportation services and ride-sharing platform uses dynamic pricing model, that's one of the reason the prices increases during peak time or uncommon times because the service is scarce and demand is more.
To implement these platforms needs to change prices multiple times a day, which becomes child's play if done by dynamic pricing tools so that no human resources needs to change the prices during the odd times of the day.
Event Management
Are you a regular concert goer or eagerly waiting for that one football match from lifetimes and finally when it is happening. You would most probably rush SeatGeek to buy the ticket for the event as early as possible, why?
Well the answer is simple, because the early you buy the ticket the cheaper you get it. But why does it happen? Because event management industries are using dynamic pricing policy to price the policy on the basis of popularity of the event, seat location, time remaining for the event and demand. All these factors and many more factors are kept in consideration before setting right price for the tickets.
Wanted to know what SeatGeek is and if you can Scrape it or not? Check out our article What is SeatGeek and Should You Scrape It or Not.
Grocery & FMCG
Grocery and FMCG are always in demand but during celebrations or vacations the food industry remarkably grows and if you observe carefully these where the times when there are changes in the prices of grocery and food items, not really remarkable but there is changes, as these industries use dynamic pricing methods to maximize the profit during demand, with the help of AI-based pricing, supermarkets optimize pricing for perishable goods to reduce wastage and boost sales.
For example, breads near the expiry dates cost much lower than when they are fresh, or you can find vegetables at low prices at the night in comparison to morning when vegetables and fruits are freshly brought.
Supermarkets and local grocery stores can use dynamic pricing tool, so that it can changes the price of their perishable goods during different times of a day on their websites. This can ensure the spare time for these organization which they spent changing prices daily or on hourly basis.
Challenges In Dynamic Pricing Implementation
If you are only finding good thing, you are not looking good enough.
Like everything else tools and technology have both benefits and drawbacks. Dynamic pricing tool is no different, till now we discussed about its features, advantages and industries adopting it, but it is also very important to know about the potential problems you can face while implementing or using the dynamic pricing tool. So let's discuss these problems so that you can make your mind, if you really wanted to use it or not.
Customer Perception
Dynamic pricing can be a great technique for maximization of profit and growth, but if business over uses it then it can also be the reason for customer dissatisfaction. As businesses who will change prices frequently of their products, let's assume a customer purchased your product when it was really in demand and the price of the product was very high but next day you lowers the prices due to some reason, then the customer you brought your product at higher prices will feel cheated and dissatisfied with company's product.
Extracting maximum profit or growing business is not a bad thing but if business does it frequently or use dynamic pricing recklessly then it can devalue the brand or can create a negative perception in customers mind about your brand.
So it is recommended that even when dynamic pricing is a very useful technique, do not overuse it otherwise it can backfire which can immensely affect your business.
Data Dependency
While dynamic pricing sounds a simple process of comparing and deciding but preparation work is very tiresome and labor some and to compare and analyze first you need the data. While in today's world where even complex activities can be automate then collecting data is not a big deal but what is challenging is the ensuring the accuracy and reliability of the data.
In todays world, web scraper and crawler can extract large amount of dataset, so large that checking it is practically impossible for a human. So dynamic pricing is impulsively data driven and there could be wrong decisions and prices of the products if the data is not really reliable.
So before choosing a dynamic pricing tool ensure the accuracy of the data it provide, for that there are different types of websites which rates the tool on different parameters like accuracy, services, customer satisfaction, you can compare tools before making a decision, so you don't have a bad experience while adopting technology.
Complexity
While implementing dynamic pricing manually is complicated enough and when we talk about setting it up for automation, well, I wish you luck. Setting up a dynamic pricing tool requires expertise in pricing strategy as well as someone who is very good with techs. Two very different combinations. While once set up and business gets familiar with it then there is not much of an issue but businesses struggles at the initial stages of implementing dynamic tool and exploring how it works, which not only can affect their businesses but can also make a wrong perception about the tool or they can just quit using the tool.
What I suggest is, business needs to ensure that the platform from where they will buy the services guides them throughout the setting up and integrating the tool to there older systems, so businesses won't spent then precious time and lose opportunity of growth because they are exploring the tool.
Conclusion
Hence in this highly competitive marketplace, relying on capabilities of human for collection of data and decision making can be proved very slow and sometimes businesses can lose great growing opportunities. So businesses needs to adopt latest technologies before their brand become outdated. And adopting tools is not because of trends, but AI based tools and technologies provides the facilities, we can't dream off few years back.
There is so much demand of these price optimization tools which not only speed up the process but also increases the efficiency of the data because of lack of human errors.
While dynamic pricing tool is becoming popular across the world and many industries are adopting it to maximize their growth and profit, businesses needs to understand that over using it can be harmful too and can tarnish their image because of constant price fluctuation.
