With increasing price transparency on the web, eCommerce price-setting is becoming ever more complicated. Products must be priced in such a way that they remain attractive to customers, on the one hand, and also offer sufficient margins, on the other. On closer inspection, however, many online retailers and manufacturers lack a transparent pricing strategy that is adapted to market conditions and internal data. This is exactly where dynamic price management comes in. In the ideal model, you would sell each of your items at a price that meets a certain minimum margin. Compared to simple re-pricing, however, which only implies adjustments within certain price limits, dynamic pricing also integrates competitor prices and internal data, such as inventories, into the calculation of the prices to be set.
In today’s article, we show you what potential a dynamic price strategy offers and how it can be implemented.
The beginning: Not as complicated as you might think!
It is important that customers understand your pricing policy, since this also works in their favour. They may gain, for example, from favourable offers during low-demand periods. Your prices must be reasonable from the customer’s point of view and any price differences must be comprehensible. In the beginning, benchmarking against your competition is a first major step. We call this active dynamic price management. To do this, you need to find out which prices your competitors are offering at what time for those products that you also have in your assortment. From this step alone, decisive recommendations for action can be derived.
- What price do you have to set for a product to be the top supplier or to secure a place in the top three on the market, for example?
- Which prices can you easily increase to what level in order to strengthen your profitability?
- Which prices should you lower to what level if you want to expand your market share?
- When does a pricing spiral threaten you and how do you avoid it?
- How does the price level of your product segments compare to competing vendors and platforms?
Thanks to intelligent software solutions like blackbee, you can receive fresh data on your current market position on a daily basis. The technology shows you for which of your articles there is potential for price optimisation and also provides you with fitting suggestions. You can then actively accept or reject these price proposals all by yourself. This means that you always have full control over your own prices. With little effort (30 minutes per day) you will then receive a comprehensive market overview. Your rapid reaction to price changes by competitors will help you to fully exploit margins and thus increase your profits. And most importantly, controlled adjustments to competitors are always welcomed by consumers!
The prerequisite: A full and reliable database
Complete and reliable data is indispensable to successful dynamic price management. The structuring, collecting and merging of data according to clearly defined rules is, after all, the very basis for data-driven and fact-based decisions. A meaningful benchmark, however, can no longer be achieved with Excel tables and the like. You will now need modern tools for data collection, systematisation and evaluation.
Companies that use intelligent solutions like this benefit in several ways. On the one hand, there is no internal effort required for manually checking and assigning of the data. Especially in areas of high dynamics, the adaptations to constantly changing conditions are drastically reduced. On the other hand, there is also the additional individual benefit of this process allowing you to quickly find and eliminate duplicate data. This ensures a cleansed database and a high-quality of master data. Once your database has been cleaned up, you can then compare the data of your own products with that of other online shops – now paving the way for dynamic price management.
You can read more about data duplicates in our article “Big data projects: Only valid master data leads to success“.
Implementation: Which market position are you aiming for?
Automated price management solutions like blackbee integrate competitor data into price-setting in such a way that the company’s individual pricing strategy becomes comprehensively implemented. Use clear mathematical rules to define which positions you are aiming for in the market and blackbee will then provide you with the appropriate recommendations. During our many years of collaboration with leading online retailers, the following strategies have emerged for individual article segments:
- Your top articles should be aggressively optimised for sales. Your customer already knows the market price for these articles. We therefore recommend that you aim for the lowest market price for you. Pricing rule: Undercut position one by just one cent.
- For items in the “middle” segment, volatility and total sales are lower than for the top articles. Strive, therefore, to become second cheapest on the market. Pricing rule: Underbid second place by just one cent.
- Your articles from the “sleepers” segment are very important to the market, but currently not highly important for your company. To leverage hidden potential for your company, it makes sense to also optimise these articles for sales and to offer the same price as the cheapest on the market. Pricing rule: Same price as first place.
- Potential items seem to be less important to the market. Here there are fewer or less-aggressive competitors and customers do not usually know the market price. With these articles, you can compensate for any margin losses in the other segments with profit-optimised pricing by orienting yourself to the third-placed in the price comparison. Pricing rule: Same price as third place.
You can read about the practical implementation of an intelligent pricing strategy in our article series “The ultimate online pricing guide – In 5 steps to active price management“. Using an example project from the pharmaceuticals industry, we show you the concrete benefits that dynamic price management can have. In the shortest of time, only two weeks since using blackbee, our example client achieved a 9.8 percent gain in gross profit, 13.5 percent more sales and a 2.4 percent higher shopping cart value.
This article was first published in more detail and in three parts on marconomy.de:
- Dynamic Pricing – Part 1
Remain competitive with intelligent price-setting
- Dynamic Pricing – Part 2
Using a cleansed database for dynamic price management
- Dynamic Pricing – Part 3
Case example – The potentials of dynamic pricing
Would you like to clean up your product data, monitor the development of your products on the market and also improve your margins? Then request your blackbee demo access now!