Price Optimization – The Art of the Dynamic and PredictiveFebruary 15, 2017 No Comments
We live in a rapidly advancing world. Those who fail to keep up, risk falling behind. Even just monitoring your competitors’ prices could be using has become a full-time job in some industries. Both online, and storefront retail stores are constantly bombarded by new trends in attracting customers and maintaining brand awareness. When it comes to price management, there is one answer that big retailers have already latched onto – and smaller stores ignore at their peril. Dynamic pricing. Being able to predict trends, and account for the current demand of products is a game changer that has already boosted the profits of stores worldwide. Modern software is capable of compiling information from current buying habits and comparing that with seasonal trends and then using an algorithm to suggest the most competitive price for your products. This predictive technology helps you make more money when something is in demand, and stay competitive when demand is weak.
Most businesses can expect an increase of 10-45% of gross profit from utilizing dynamic pricing software.
Low prices help you attract customers, and can build brand loyalty. Making sure your prices are always competitive through algorithms makes sure you are never turning off part of market with too high prices, but also ensures you are not losing out on profit in the quest to beat the competition.
Airlines are the best-known example of these types of practices. Airfare will raise and lower depending on what day it is, what seat is being sold, and where the tickets are being sold at. The same exact two seats on a plane can vary drastically depending on when and where you buy it. Though these practices are most evident in airfare, they take place across thousands of stores across the world. Most don’t publicize this fact since it can lead to bad PR if the narrative goes the wrong way, but most successful retailers use a version of dynamic pricing. Office supplies to vehicles are all adjusted according to location, IP address, buying habits and trends.
Dynamic pricing can also help suggest prices depending on what it determines your market’s ability to pay is. Like the person to person exchange in a medieval marketplace, the seller once again can ascertain the likelihood of an individual’s ability/willingness to pay more for certain products. This is harder to implement, but using specific links and targeted ads, it’s possible to increase profit from a product by simply figuring out who is buying it, and from where. These are fantastic indicators of what they may personally be willing to pay for your product. For example, Orbitz found that people buying from a Mac were prepared to pay up to 30% more for hotels, and adjusted what ads they targeted these users with accordingly. I’m assuming they determined it by the browser being used. Grocery stores look at purchase history/trends of users (that’s why they are always promoting those store based discount cards) and will target them with relevant coupons and ads. Another interesting one, reported on by Forbes, determined that at Staples a product may be priced higher for someone further from the store. The Forbes writer guessed that this was to entice more impulse purchases from those living closer to the business.
Although some of those are more extreme examples, the truth remains that you need a strategy for growing your digital presence, promoting your store, and utilizing aggressive pricing techniques are the only way to survive in retail – be it the digital or real world.
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