Retail TouchPoints: Five Trends to Anticipate in Dynamic Pricing

Discussion
May 23, 2013
Arie Shpanya

Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.

While many e-tailers may not have the resources of an eBay, Amazon or Staples, most can still tailor their pricing strategy to increase competitiveness online.

Here are some tips for bringing "Amazon Wisdom" to an online business:

Adjust your price according to the competition. If your competitors lower their price, follow suit. For example, maybe a top competitor has an item priced one cent below yours. Match that price. If this specific competitor goes out of stock, buyers will come straight to you.

Adjust price at a specific time of day. Online stores are not terribly different from those in a shopping mall. There is almost no traffic in the morning and little business in the afternoon. Evening is the peak time. Why not price a bit higher when most of the shoppers are ready to buy?

Adjust price according to web traffic. Measuring the traffic for specific items can indicate what products should be repriced higher or lower. Like simple economics, when the demand is low, the price should be dropped, and when the demand is high, the price should be raised. Web traffic will reflect profitable pricing decisions.

Adjust price based on conversion rate. Conversion rate is similar to traffic in that it indicates clearly when a product is not priced optimally. If there is lots of traffic and little sales, something is wrong. In this case, the price is usually too high. Conversely, items that get a fair amount of views with a high conversion rate can be marked up due to their inherent popularity.

Price according to sales velocity. In this circumstance, the price is based on how well the item is sold. For example, if you wanted to sell 10 units/week of a given product, the conversion rate goal would follow as 10 sales per week. To reach this goal, adjust your pricing according to the competition, time, traffic and conversion rate. This will require you to fluctuate the price and experiment with these strategies until you get to the designated sales target.

What advantages do online stores have around pricing optimization versus brick & mortar stores? Which of the suggestions mentioned in the article offers online retailers the greatest opportunity for growth? Are there others you would add?

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19 Comments on "Retail TouchPoints: Five Trends to Anticipate in Dynamic Pricing"


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Joan Treistman
Guest
6 years 1 month ago

It’s not all about price. The suggestions given are within the context of “all things being equal.” Retailers must identify the differences between themselves and competitors and develop their strategies accordingly.

Online shopping just like on-floor shopping can be influenced by many factors. Price is one. Perceived value is another. Customer service, ease of navigation, product quality, trust worthiness, return policies, previous experience and other imagery make a difference in the buying decision.

If the retailer focuses on price only, the outcome is not likely to fall in line with the story in this article.

Debbie Hauss
Guest
6 years 1 month ago

Some of these tips must be taken on a case by case basis. It’s important to have an overall brand pricing strategy in place and, while retailers should be watching the competition, it shouldn’t necessary be a knee-jerk reaction to change prices.

Also, instead of changing the price, it might be more advantageous to engage shopper analytics to find out who is researching the products, then send certain shoppers special offers and/or personalized promotions.

With shopper analytics in hand, merchants also might be able to better correlate online research to in-store purchases. The price may be correct, but the shopper chose to go to the store to complete the purchase.

Max Goldberg
Guest
6 years 1 month ago

The article is about basic yield management, which may work well financially for the airlines, but is not the answer for retail. Many other aspects come to bear in a consumer’s buying decision. Customer service, sales tax, speed of delivery, ease of navigation and trust all play a role in the decision. Competing strictly on price is a slippery slope that has seen many companies go out of business.

Zel Bianco
Guest
6 years 1 month ago

Online stores have a huge advantage to be agile in pricing, not only from online competitors but also gaining intel from brick and mortar prices, and progressing accordingly. All the points listed above are relevant, especially, pricing competition and traffic. Pricing by the competition doesn’t need to only mean cutting costs as well. If your competition is offering an inferior product, draw comparisons and educate customers to see why one is better.

I would also always be looking at shipping costs and what that does to the actual sale of items. Are shipping costs too high and prohibitive?

Keeping an eye on all these factors will ensure greater success with online pricing strategies.

Liz Crawford
Guest
6 years 1 month ago

This is a nice list for a small business owner to keep pace with algorithm-based dynamic pricing. I especially like the time of day/day of week suggestion. Getting peak online shopping hours is fairly easy to research, so it’s a low-calorie way to optimize pricing.

Ryan Mathews
Guest
6 years 1 month ago

What works for digital shopping doesn’t necessarily translate to physical stores.

I agree with Joan, Debbie and Max. All I can add is that price variability online looks like a treasure hunt. In physical stores it tends to look like profitering.

Customers who see too much fluctuation in prices will begin to assume that whatever price they paid was too high.

Robert DiPietro
Guest
6 years 1 month ago

Retailers can’t strictly compete on price and customers buy on percieved value to the product and other factors as service, time to deliver, etc.

Dynamic pricing or yield management for online is a slippery slope for retail merchants.

Nikki Baird
Guest
Nikki Baird
6 years 1 month ago

The one thing that is missing—though hinted at in the article—is availability. If everyone else is stocking out or has limited supply, that is not the time to be lowering your price, unless it’s because a newer version of the item is coming out. Even then, sometimes items that are on the cusp of obsolete could actually tolerate a big price hike—if it’s the item everyone wants. One of the beautiful things about online transparency is that it can often apply to inventory levels too.

Lee Kent
Guest
6 years 1 month ago

Playing around with price can be a risky business unless…the consumer knows that is what you do. You see, if price is fluctuating all day long, I don’t know about you but, it’s gonna make me mad!

If the brand is known for price fluctuations, I may play the game but remember, it’s only a game to me. If I really need the item or just don’t have time to play, I will go to the tried and true brand and pay whatever they ask.

Now don’t get me wrong, I am all for price optimization. I also understand that retailers are going to adjust price as time and market for the item wanes. My suggestion here is that retailers think hard before they play with price throughout the day. The results may not be what they think.

Rynder Klomp
Guest
Rynder Klomp
6 years 1 month ago
Shoppers are a lot smarter than often given credit. They will soon realize that dynamic pricing is occurring, and will be more than a little aggravated if the pricing is not managed appropriately. For example, if you are going to change prices depending on store traffic, then make sure to publish that policy clearly, and frame it so it is a benefit to those shoppers who come in the store during off-peak hours. In other words don’t raise your existing prices for peak hours, rather, lower your prices for off-peak hours. In the late 1990s, a major soft drink company test marketed a soft-drink machine that included a thermometer. The higher the temperature went the higher the price of the drink went. The soft drink company’s belief was that consumers would be willing to pay more for a soda during hot days; a fair assumption. The consumers saw it as hugely unfair, and as an abuse of power. An immense PR disaster for the soft drink company, they very quickly pulled the pilot and called… Read more »
Bill Bittner
Guest
Bill Bittner
6 years 1 month ago
Dynamic pricing offers a whole list of opportunities that look at both the supply side and demand side of the equation, but I think the biggest opportunity will be in the brick and mortar stores. HOWEVER, no brick and mortar should do it the way Rite Aid has apparently attempted. I was in a Rite Aid recently. There is no store near me but I do often go out of town on weekends where there is Rite Aid nearby so I have a card. Imagine my surprise when I picked up an item that was on the bonus card, got to the checkout, and didn’t receive any discount. I followed my usual procedure in this situation and without saying anything to the cashier returned to the shelf to see how I had misinterpreted the offer. In the fine print under the bonus price it said “gold level customers only.” Do you think this experience made me want to become a gold level customer? Dynamic pricing is like playing with fire. While it can be very… Read more »
Lee Peterson
Guest
6 years 1 month ago

Another opportunity for growth for online retailers would be to open stores. Which, in my mind, should no longer should be a taboo conversation for them.

In a study we just completed, the top three elements of bricks shopping that consumers favor the most trumped ALL advantages of on-line shopping (including price comps), indicating that the physical premise is holding up quite well.

Bonobos really gets this combo now by offering the advantages of both, and it was not too long ago that their founder claimed he’d “never” open a physical shop. Hopefully his counterparts at the aforementioned onliners will come around soon.

Graeme McVie
Guest
6 years 1 month ago

Be careful about lowering your prices to match the competition. You could end up in a death spiral. This strikes me as outsourcing your pricing strategy to the competition.

The challenge with time-of-day pricing is that you could create the impression that you’re jacking up the price in the evening. That’s really risky. You can alienate customers. You need to have some level of consistency.

A good strategy to consider is pricing based on the customer dimension. Take into account the customer’s loyalty and previous purchasing behavior, including sensitivity to prices on certain items. Offer personalized coupons providing a percentage off specific items to specific customers. That’s a more sophisticated and targeted approach. And you’re not giving a discount or sacrificing sales to just any customer.

Ed Dennis
Guest
Ed Dennis
6 years 1 month ago
Wouldn’t it be much easier to spend your efforts providing more service instead of blistering your feet running around messing with your business and customers by moving your prices up and down based on the size and species of fish swimming by? If pricing was the main issue, then there would be no one but Walmart in business. How do they stay afloat in the face of withering online competition? Well, you aren’t Walmart and your resources aren’t unlimited, so I would strongly suggest that you WORK on your product selection, pricing, presentation, service and marketing. If you are selling TVs then offer 2 free HDMI cables with the purchase (you can claim this is a $60 value as some actually sell these for $30 each, but you can buy one for $2). Think about your customer and what you can do to make his life better. Jerking pricing around isn’t real smart. If it was, then the big guys would already be doing it. Don’t waste your efforts on gimmicks, none of them work… Read more »
Sri Velamoor
Guest
Sri Velamoor
6 years 1 month ago

The article’s focus seems to be more on how to implement dynamic pricing rather than the trends observed within the industry as it relates to this practice.

That being said, we believe that dynamic pricing practices are indeed proliferating and the availability of real-time intelligence across influencing elements like availability, user-behavior, competitor actions etc. are further enabling contextual pricing. It’s true that Amazon does it to the extent of even using the consumer’s browser choice as an input variable.

We have found that there are observable trends with regards to this practice ranging from product categories that show greater price volatility to which retailers are leaders/followers based on time period and product type.

Steve Montgomery
Guest
6 years 1 month ago

No one likes being the guy on the plane that finds out his seat companion paid less than he did for the flight. What makes anyone think that a B&M retailer using the same pricing method will endear themselves to customers?

AmolRatna Srivastav
Guest
AmolRatna Srivastav
6 years 1 month ago

Online stores have an edge w.r.t. speed with which prices can be changed. However, as pointed out by others, too much variability can be counter productive. I suspect more online users compare or check prices post purchase and it’s not a good idea to tell your customer that oops you made a mistake by purchasing 1 hour earlier.

Adjusting price at specific time of day? While this may work in the short term, I guess this can be picked up by customers eventually if it’s done all the time, i.e. you may start finding more and more customers purchasing in the morning—let’s not forget the mobile shopping aspect.

Still I think this is a thought provoking article and some of the suggestions or a combination of suggestions can work for dynamic pricing.

Arie Shpanya
Guest
6 years 1 month ago

Thank you for your comments. I agree 100% that the pricing strategies I mentioned do not apply to every business and that other decision-making factors besides pricing come into play when a customer purchases a product online or offline.

The pricing strategies I mentioned apply to online businesses that are in a constant pricing battle, similar to Amazon sellers, and need to make sure they are not losing money on sales. By adjusting prices according to time of day, web traffic, or other factors, online sellers can avoid lowering prices when it is not always needed.

There’s a lot more that goes into pricing strategies as well, including shipping fees (as Zel Bianco mentioned), bundled products, and coupons.

Your comments are very helpful and I enjoyed learning from many of your comments and suggestions. Thank you.

Alexander Rink
Guest
6 years 1 month ago

Thank you for provoking an interesting discussion, Arie. Apologies for coming to the party a bit late, but here is a quick summary thought.

I do think there some interesting tactics outlined in the article. I echo the multiple comments about the difference between online and B&M stores, and the strategy (or lack thereof) of simply matching price. In my view, the most important choice for retailers—whether online of B&M—is whether they want to take a strategic vs. tactical approach to pricing—think Apple vs. Turkish Bazaar. In one case you are building a brand and standing up for what you believe to be pricing that reflects your value; in the other you are willing to price dynamically based on what the customer looks like, is willing to offer, can match it at, etc. I don’t know of too many examples of companies that have become world-class brands taking the latter approach.

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