Will personalized pricing end retailers’ use of dynamic pricing?
Through a special arrangement, presented here for discussion is a summary of an article from Retail Paradox, Retail Systems Research’s weekly analysis on emerging issues facing retailers.
While sometimes used interchangeably, dynamic and personalized pricing are not the same thing.
In dynamic pricing, the price generally changes according to variables specifically not customer-related. Prices might be altered based on time of day, available supply, competitors’ prices, or maybe, just maybe, the volume of traffic to a product detail page. The price may change, but everyone will see that price no matter who they are, so long as they are on the product detail page at the same time.
With personalized pricing, it’s entirely about who the customer is. There is the price on the page or on the shelf, and then there is “your” price — the unique offer you received.
Personalized pricing does not mean you need to know everything there is about a customer. If an unknown shopper comes back to a shopping cart item five times but hasn’t purchased, an offer to knock 10-percent off the price — just for that shopper that one time — may net a purchase that might otherwise have been lost.
In the same way, if the shopper is known, a low-value shopper who hasn’t demonstrated much loyalty may not receive that little extra incentive, whereas a high-value, loyal shopper just might.
Retailers, it appears, have decided that dynamic pricing is on the out. In our newest benchmark report on pricing, 22 percent of respondents saw dynamic pricing as an opportunity in 2017, down from 28 percent in 2016. The opportunity inherent in personalized offers crept up from 31 percent in 2016 to 33 percent in 2017.
Yet if dynamic pricing is out, why didn’t personalized receive a greater uptick? Retailers fear consumers’ reactions. Consumers noticing just how much retailers know about them may decide — whether they get better offers or not — that they don’t like it.
So, while retailers may be seeing opportunities to develop more personalized prices, they also have to be careful and take a slow and steady approach to introducing personalized offers.
DISCUSSION QUESTIONS: Do you see a bigger potential benefit for retailers using personalized pricing versus dynamic pricing? Do you see a backlash coming from consumers over personalized pricing or dynamic pricing?