IRCE recap: Retailers have to be careful with dynamic pricing
Technology has given retailers new ways to adjust pricing, but dynamic pricing can be a double-edged sword – and retailers need to proceed with caution to avoid some major pitfalls. That was one of the takeaways from a session given by Paula Rosenblum, managing partner at RSR, at the Internet Retailer Conference and Expo in Chicago last week.
Ms. Rosenblum illustrated the trickiness of changing prices in-store in real-time. She gave the example of using electronic shelf labels to lower the prices on bread as the product approaches its expiration date. A customer standing in front of a shelf when the price drops may be pleased. But if a customer sees a real-time price adjustment that increases the price because it’s a high-traffic time of the day, it’s possible that the customer will feel alienated, if not outraged.
Likewise, Ms. Rosenblum illustrated the importance of staying within the same price range as a competitor, even when other factors may make a retailer feel justified in going far above a competitor’s price. She discussed having visited Amazon.com as a customer to do a comparative price check on a product she was interested in purchasing. On at least two occasions, Ms. Rosenblum found prices 25 percent above Nordstrom on Aveda products.
“I don’t care about a couple bucks … but when you’re charging me 40 dollars for something I can get for 30 dollars from Nordstrom, or from Aveda itself, I’ll wait a day,” Ms. Rosenblum said. “For a $2 difference I would have bought from Amazon. At 10 bucks, I say no, you made me feel awkward.”
While the question of whether a retailer should price dynamically — and to what extent — has no hard and fast answer, Ms. Rosenblum gave the following guidelines to avoid pricing catastrophes:
- Keep up with competitors’ prices, whether you choose to match or come close;
- Whenever possible, keep your regular prices standard across all channels;
- Be careful about zone pricing in a price-transparent world;
- Be careful about personalized pricing.
“You have to be very, very careful not to alienate the customer, and not to devalue your brand,” Ms. Rosenblum said.
DISCUSSION QUESTIONS: How can retailers best implement dynamic pricing and make use of comparative pricing intelligence? Which retailers would benefit more from using dynamic pricing models, and which should use more caution?