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What is Dynamic Pricing and Why Online Retailers Should Use It?

While Dynamic Pricing strategies have been around for nearly 4o years in the corporate world, it is the e-commerce markets where it is now set to make the biggest changes. Dynamic pricing is a strategy that allows businesses to price their goods based on a broad range of variables that affect demand – rather than the standard method of adjusting solely based on how a storefront or sale has done in the past.

The sea of information the internet provides us every day has allowed the algorithms for dynamic pricing to become ever more accurate and useful – and it is now set to make it absolutely necessary if an online store wishes to compete against other e-commerce sites and the big box giants out there.

The Math Behind Dynamic Pricing

Most large stores have already adapted their pricing models around dynamic pricing – it provides the math they need to know when to launch certain sales and when to mark other products up in price. One of the clearest examples of this model in use is Airline tickets. Everyone knows that the tickets are cheaper earlier on, but an increase in price a time goes on (with some weird variables on certain weekdays and times of day) but you can also see ticket prices rise if other airlines are forced to cancel flights or a storm limits the number of planes that can travel.

Dozens of variables are calculated to set the price for each seat in that plane – yes they will sell practically the same seat at different prices on the same day. This is all due to the advanced algorithms used in their dynamic pricing strategy and it is how they are able to stay competitive in their industry.

Once one business starts pricing things more efficiently, their competitors must begin to also, or risk falling behind. That is why you see this method being adopted more and more across all industries by those who have the foresight to know that technology shall shape all things.

Are You Ready for the Online Battle?

To even stay alive online you need to understand the importance of your digital presence and making sure consumers know where you’re at, but that is only half the battle. Since online shopping has allowed consumers to compare the costs for the same product across many stores, in order to make the sale you must have low and competitive prices. This can be done, for example, through competitor price monitoring.

To make up for this loss in profit you must know when items are in higher demand so you can mark them up. Trying to understand and stay on top of these trends by yourself is an impossible task. Thankfully there is now affordable software that allows you to stay abreast of trends the same way the big stores have for a while.

For example, dynamic price optimization software by UpstreamCommerce takes into account a number of your business metrics along with real-time marketing data to set prices and make trend predictions. This is an incredibly powerful tool for deciding price decisions and strategy for your company.

Harness Insights to Outsmart the Competition

Having this sort of knowledge at your fingertips can quickly shift your entire marketing and pricing strategies. You will be able to examine the competitive landscape of your industry and the historical pricing patterns for the type of products you sell. This allows you to see purchasing trends and adjust your offerings to fit the purchasing habits and timelines of your target market. These insights are built to help you outmanoeuvre your competition and to know what your customers want before they even do.

Though successfully marketing and operating a fruitful business takes a nimble mind that no software can provide, having the right tools to help you make decisions can make all the difference. Many businesses that switch over to dynamic pricing quickly see an increase in gross profit ranging from 15-45% and those are fantastic numbers for a business that is also able to increase its loyal customer base due to competitive pricing simultaneously. It really is like having your cake and eating it too for the e-commerce business person.

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