Dynamic pricing has emerged as a core consideration for retailers as they begin factoring more meaningful competitive data into their operations. While it was once a strategy adopted by industry leaders, it has now become standard procedure for staying relevant and competitive. Price managers and their colleagues need to collaborate in order to bring out the most in their dynamic pricing strategy, which is the specific act of changing prices in response to external factors such as competitors or sales targets. Price intelligence software is the cornerstone of dynamic pricing, but strategy must be applied in tandem to optimize margins, response times and other pricing KPIs.
Customer expectations do not shift as quickly as prices
Mobile devices unleashed a new era for shoppers, who are armed with better information (especially on pricing) than ever before. While there has always been a “right product, right place, right time” mentality towards omnichannel operations, the effort of targeting customers can go wasted unless they are also offered the right price.
The idea of “the right place” is also something to revisit, as omnichannel pricing has added new dimensions to customers’ geography and channel usage, like showrooming and webrooming. Shoppers who showroom try a product on in the store first, then buy it online with the hope of finding the lowest price, possibly from a competitor. Webroomers take the opposite approach and research merchandise before going into a store to make a purchasing decision, which works better for retailers that have prices that entice customers to come in store and seal the deal.
Zone-consistent pricing is an excellent strategy for handling showrooming and webrooming because Web and mobile users see the same price online as they would in-store based on their location. Even if there is region-to-region difference, retailers should remain focused on maintaining a seamless transition from online channels to local brick-and-mortars and vice versa. As long as a retailer’s respective price zone remains consistent, the potential to increase margins in other regions with less competition opens up.
If a single price is preferred across all regions, then more detail should be paid to that price through testing. Using price intelligence technology to experiment with profit margin, replenishment speed and turn in advance all coincide with making longer-term, far-reaching prices smarter and more data driven.
Preparing customers for the ups and downs of dynamic pricing
Large retailers like Wal-Mart and Amazon have aggressive dynamic pricing strategies that cause thousands of alterations every day, which often lead to difficulty maintaining clarity with customers. When poorly executed, dynamic pricing can be a major strain on customer service and brand identity. New technology is something that needs to be implanted across the enterprise, not just by buying decision makers. When IT, marketing, e-commerce and other departments plan their strategy for price fluctuations together, there’s a higher likelihood that they will be clearly and effectively conveyed to customers.
Welcome to the jungle
Most retailers cannot sustain constant undercutting the way Amazon can, so it’s important to strategize around customer service, in-store experiences and exclusive merchandise. Loyalty programs, special offers, the right mix of channels and other elements of the customer experience can help bring customers back to a brand, even if it doesn’t offer the lowest price.
Recent Amazon promotions like Prime Day can wipe out an SKU in a matter of moments, giving retailers a major opportunity to monitor their product availability and profit accordingly. There are a couple chinks in Amazon’s armor, like issues with third-party resellers and merchandise that is exclusive to certain brands. Even Amazon’s own price testing can entail higher prices, since the e-commerce giant often hasn’t determined final price for an SKU and wants to see how high the market will let them price it. Amazon, however, isn’t the only retailer running deep discounts at a loss, as new market entrants like Jet are also worth keeping an eye on.
Turning price intelligence into product segmentation
For similar, but not identical products, receiving intelligence on item attributes can be helpful when it comes to product segmentation and pricing. Private-label items must use item attributes in connection with pricing to optimize market position and profits. Even if they are not identical, understanding how one retailer’s little black dress stacks up against its competitors is very valuable information.
Final words on final price
Retailers need to know how pricing affects consumer buying decisions, as well as understand competitive pricing fluctuations in order to determine a strategy and how quickly they need to respond to changes. Remember, the lowest price does not always make for the best strategy. Retailers need to take a more holistic approach that analyzes potential losses and gains through different pricing strategies.
Mi9 Retail’s price intelligence module collects near real-time competitive product information such as price, size, availability, assortment, UPC, images and more. The goal is to give retailers specific insight as to how their products are priced within the landscape from start to finish, allowing for strategic price changes based on the competition throughout an SKU’s life cycle. For those retailers that double as brand manufacturers, the module enables easy and accurate monitoring of MAP policies to ensure brand integrity, sales growth and optimized pricing while enforcing compliance too.
Price intelligence, like other disruptive technology trends in retail, is equal parts innovation and implementation. With strategic thought, smartly integrated technology and help from supporting departments, price managers will be able to optimize their decision making.
Jason Wilson is the communications manager for Mi9 Retail, a provider of retail enterprise business intelligence, analytics, price intelligence, merchandising and store operations software. Prior to Mi9 Retail, he worked as an independent contractor developing communications strategies for clients involved in patent services, telecommunications and retail technology. He can be reached on Twitter.