Dynamic pricing: what online retailers need to know about it
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The price is determined by supply and demand. So far so good. However, pricing tools can be used to optimize revenue and sales. But what do online retailers have to consider?
At the petrol pump, drivers have long taken several different prices a day for granted, but many customers are suspicious of other goods and services. Fluctuating prices, especially in digital channels, mean one thing above all else: a high degree of transparency. Dynamic pricing boils down to adjusting prices in online shops based on given variables depending on the situation. “Dynamic pricing is generally not directed against the customer,” emphasizes Michael Feindt, AI expert and strategic consultant for the supply chain management platform Blue Yonder. Since a large number of dealers and providers are now using it, it is rather a fair price that is based on supply and demand. Dynamic pricing should always be understandable in order not to annoy or unsettle the customer.
Depending on the amount of data available, price adjustments are often made several times a day and are based, for example, on the pricing of competitors and the current relationship between supply and demand. Larger retailers use tools to evaluate a large number of data points and accesses, for example visits to the product page, goods in the shopping cart or actual purchases – and now often separately for desktop and mobile browsers, social media access and apps. Companies rely on algorithms that constantly rummage through the price search engines and online shops of competitors. Already today, more than three quarters of all requests from large online retailers can be traced back to bots, which get an idea of the current price of goods.
After all, four out of ten online retailers in Germany now generally use price management software for optimal pricing, as a study by the Federal Association of E-Commerce and Mail Order Germany (BEVH) shows. The management consultancy Pricewaterhouse Coopers (PWC) determined in 2019 that just one in five retailers in Germany also adjusts their prices automatically – partly fully automatically, but partly with final adjustments by sales. According to their analysis, a pricing tool can lower sales costs by 14 percent and achieve an average of 3.9 percent higher prices.
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How to find the optimal price with the right tools
The use of pricing tools is not difficult – assuming you have some commercial knowledge. The relationship between access and purchase processes can show retailers how popular a product is – also in comparison to other products. Based on the cost structures and purchase prices, a corridor can be defined in which prices may fluctuate.
In addition, external influences can be defined that can influence the price, such as the day of the week, time of day or the course of the season and weather data. The date (e.g. shortly before the end of the month or a month that is particularly attractive for a certain product group) can be taken into account in the price calculation. In many cases, pricing tools also incorporate the prices of competitors.
Based on these factors, rules can be developed which, according to Feindt, should not restrict too much: “For example, it can be a mistake as a clothing retailer to only plan price reductions during the season. When suddenly the weather is right for the clothes, you could raise the prices at short notice in line with demand – if only so that the goods don’t sell out too quickly. ”These rules have to be gradually adapted to the respective business – a task that requires a sure instinct and expert knowledge.
