The Ultimate Guide On Dynamic Pricing

The Ultimate Guide on Dynamic Pricing

Running an e-commerce business isn’t an easy task. There are various things that go into planning and executing the business, one of which is, of course, pricing the products and services.

Even if you have high-quality products and services to sell, having a properly planned pricing strategy is highly crucial. This is because, if your products are priced too high, then you will lose potential customers. Likewise, if your product pricing is too low, then you may end up suffering huge losses. That is where dynamic pricing in ecommerce comes in. It helps you balance the prices appropriately as per the market standards without hurting the profit margin.

However, implementing dynamic pricing isn’t as easy as it may sound.

But don’t worry, we are here at your aid. Today, we will take a look at some of the major aspects of dynamic pricing, so you get started easily. But before that, let’s understand –

What is Dynamic Pricing?

Dynamic pricing meaning isn’t that hard to comprehend. This is because it is somewhat similar to “competitor-based pricing” and “market-based pricing.”

When someone employs Dynamic Pricing with their business module, they follow a process of setting and fluctuating the product prices over time based on various factors, trends, predictions, supply, demand and conditions.

Dynamic pricing is sometimes also referred to as real-time pricing because it is determined based on the ongoing market conditions.

To get a clear idea, consider these dynamic pricing examples:

  • Airline Tickets, for instance, have fluctuation in price during the weekends and the weekdays. You will notice that the prices are higher or weekends, resulting in people biased towards travelling on the weekdays.

  • Most bars have “happy hours” to attract people during unexpected hours. This way, they gain the benefit of attracting customers even during the day time, thus proving effective to increase profits.


How does Dynamic Pricing work?

In order to implement dynamic pricing, you will need a huge amount of information. This will contain details of initial conditions, customer information, customer price perception and the price your competitors are charging for similar products and services. 

Even though dynamic pricing strategy has been around for a few decades, it is only recently that businesses have started implementing different types of dynamic pricing. 

Benefits of Dynamic Pricing

One of the biggest byproducts of dynamic pricing is maximized profits and sales throughout the company. The other benefits include:

  • Impressive authority on pricing strategy

  • Helps to produce impeccable, SKU level prices

  • The rapid response over demand inconstancies

  • Long term increase in profits and sales

Three things to avoid when employing Dynamic Pricing

Well, even though dynamic pricing can prove amicable, it surely has a few pitfalls that you must avoid, such as:

  1. Avoid the “set it and forget it” path: It is highly absurd to believe that your pricing software will stay potent for the long run. Make sure that, along with the computer automation, even your hands are on deck all the times to keep up with the changes in trends. 

  2. Avoid being indecisive: Likewise, you might not want to irritate your customers with constantly fluctuating prices. This is because your customers will wait until the price drops to buy something from you. Or worse, may stop trusting in your services altogether. 

  3. Avoid starting from the bottom: Avoid undercutting your competitors because they may do the same with you too. Instead, work ethically to avoid the ultimate plummet in the value of the services and products. 

How to gradually employ Dynamic Pricing

One cannot simply implement Dynamic Pricing overnight. And there are two reasons why sudden implementation of dynamic pricing technology may prove problematic:

  • With an immediate switch in the pricing plan, you may inflict havoc on your organization. The cash flow may suffer, and even the staff may still be catching up with the new changes. 

  • If you are in business for a long time, then your loyal customers may notice the sudden price fluctuation within a short period.

When the situation deals with money, it is always wise to taken gradual steps to ease up with the changes. You can follow strategies like:

  1. Consider initial pricing: This step is crucial for a business that is new in the market and hasn’t given much thought to pricing strategies.  Here, you will need to use your understanding of the market and pricing standards, along with the idea of your expected profit margin, to price the products. 

  2. Roll out loyalty programs: One of the best ways to introduce dynamic pricing is by rolling out loyalty programs. For instance, amazon dynamic pricing aligns with its premium loyalty program. It offers an extra benefit to customers paying a minimal fee on the prime program.With prime membership, Amazon is able to segment the customers into different groups, thus, offering dynamic pricing strategies to each group individually. 

  3. Employ demand pricing: As per demand pricing, you can employ initially-defined prices then choose to increase and decrease as per the current demand.  For instance, Wal-Mart dynamic pricing takes various things into considerations before setting out the final price. In fact, you can come across slashed out prices in most aisle attract the customer into thinking that they are paying less than the initial value, thus, resulting in better profit margin.

  4. Comprehend perception pricing and implement it: Most prices are set based on what the customer is willing to pay. However, you must also think if your customer wants your product or not. You cannot shoot the prices blindly, even if you wish to set demand pricing. 

So, it is vital to consider certain aspects before opting for Dynamic pricing software, such as:

  • Product’s expected value

  • The customer’s ability to afford it

  • Customer’s will of paying for the products. 

Over to you

Well, we are hopeful that our blog was able to guide you in the right direction.  But it is wise to keep in mind that every business is different, even if the objectives are the same. So, it is vital to choose pricing strategies that match your industry, competitors, customers and your business goals. Leverage the efficiencies of tools like Competitor and Price

Analytics brought to you by Wersel, to know more about the competitive landscape for product and pricing intelligence.



Wersel Marketing Team