E-commerce: Profitable Growth using Dynamic Pricing Solutions

The concept of dynamic pricing isn’t new. It was introduced in the early 80’s when American Airlines deregulated their ticket pricing due to higher customer demand. Since then, dynamic pricing has slowly crawled towards the retail sector and found its place in the whole market. 

Today, dynamic pricing has become an invaluable asset for ecommerce organizations  to achieve sustainable and steady growth. E-commerce giants like Amazon and Uber are using dynamic pricing as a feature to maximize their profits.   

Basically, dynamic pricing is a pricing strategy that retailers use to change prices over time to customize offers to users, considering their purchasing history. Dynamic pricing solutions help retailers overcome challenges of consumer price perception and achieve consistent growth.  

It automates the sales process and helps retailers cut off labor expenses. With effective implementation, it has the potential to maximize profit.

Here are five modules for effective dynamic pricing mechanism, all operating side by side: 

The Long Tail Module: Price optimization for niche products 

“ Broadly, the Long Tail is about abundance. Abundant shelf space, abundant distribution, abundant choice.”-Chris Anderson 

Chris Anderson invented the term “Long Tail” in 2004. 

With modernization, customer preference and behavior is changing. Customers are gaining more interest in products and services which are unique and fit their preferences and requirements. It  clearly increases demand for those products in greater numbers. These unique products are “ Long Tail” products. 

Long tail products have little or no historical data. Long term module helps the retailer to set the introductory price for such products via intelligent product matching. It identifies  based on product attributes,  which purchase-data-rich products (hit products)  can be compared to new products having limited purchase data (Longtail items).  

Customers can be persuaded to pick up niche items along with their main purchases. This can be done by forming product clusters. Encouragements such as special offers and symbols pointing to certain items in  stock, can also be included.  

Advanced machine learning algorithms can learn across clusters and groups. It analyzes the products and positions them in relation to other items from different groupings. 

E-commerce engines can easily refer customers to these items based on products they already have in their carts, by analyzing their click  streams and online search behavior. 

Elasticity Module: How price of a product affects its demand? 

Price elasticity determines the relationship between price and demand by utilizing huge amounts of historical data on both variables. It describes how a change in price affects consumers’ demands. 

Price elasticity depends upon factors  such as availability of alternatives, consumer’s budget for purchasing the product, brand loyalty, and degree of necessity

Time series analysis and big data analytics is used to study the price-demand relationship considering factors such as seasonality and competitive moves. 

KVI module: Key Value Items Module 

Key value items directly impact consumers’ price perception and retailers’ value perception. Consumers tend to remember the prices of these goods as they buy them more often.  These are the top  seller items and hence retailers take consecutive steps to find key value items. These items vary from store to store but their purpose is the same. For example, key-value items will be different for a grocery store as compared to a convenience store. 

KVI module uses actual market data and ensures that key value items are appropriately priced.   

Information on such items is collected and dynamic pricing using ML algorithms is applied to other similar range of products.  

The competitive response module: 

Competitive pricing is gaining value with constantly rising competition in retail market. It is rapidly becoming one of the most sought-after pricing strategies. But creating a successful pricing strategy requires depth knowledge and understanding of potential customers.  

 Here are some of the fundamentals for a successful competitive pricing strategy: 

1. Know your competitor, 
2. Obtain high quality fresh market data, 
3. Know your market positioning, 
4. Understand consumer behavior, 
5. Make it dynamic and adjustable. 

Competition intelligence and benchmarking tools are the key decision-making resources for identifying the competitive prices.  

Omnichannel Module: 

To provide customers with seamless purchasing experience, omnichannel module merges prices among all existing channels (offline and online). It provides retailers with a better understanding of customers’ behavior. 

From a customer’s viewpoint, an omnichannel environment makes it easier to compare prices between stores and online, to purchase a product from any channel, easily through any of the retailer’s multiple cross-channel fulfillment options. These abilities allow the retailer to remain competitive in a crowded e-commerce market. 

With rising competition in the eCommerce market, dynamic pricing comes as an optimal solution and enables you to stay on top of your competition. Dynamic pricing solutions leverage you to push sales and maximize profits.