Already shopping in winter for swimming trunks and the like for the summer? This makes sense at least in one respect: the prices for seasonal clothing are currently still low. Prices are never stable, as the above example from the seasonal business shows. Online, these fluctuations are much more short-term and individually tailored to the respective customer through the implementation of dynamic pricing strategies.
In 2018, Verbraucherzentrale Brandenburg (Brandenburg Consumer Centre) monitored the pricing of 16 selected eCommerce retailers. The result: price variations were observed for more than one in three products in the 34 days surveyed. In the electronics and pharmaceuticals sectors, every second product varied in price during the study. The consumer centre also examined the frequency of price changes for the same product by the same retailer. In extreme cases, for example at DIY stores and car accessory dealers, prices varied almost daily. The price fluctuations that were recorded varied; around one third of product prices changed by at least 20 percent. According to the results, dynamic price differentiation has long been a basic prerequisite to survive in eCommerce. Have you not yet implemented a dynamic pricing strategy for your online shop? The following recommendations will help you with this.
Dynamic pricing strategies: Take advantage of earnings potential
There are various ways to implement dynamic price differentiation for your web shop – but be aware that price adjustments that are not cleverly implemented will quickly scare away your customers! The eCommerce magazine e-tailment lists three dynamic pricing strategies. Use the following pricing components to improve your online shop:
#1: Time-dependent dynamic pricing
Time-dependent dynamic pricing takes both the time of day and seasonal factors into account with the basic idea of seasonal sales continuing online. As mentioned in the example above, summer fashion prices rise in spring, while they fall again in autumn. For this reason, a time-dependent pricing component is particularly suitable in the fashion sector. In most cases, online merchants also offer their products over the weekend at higher prices than during the week, and even price changes based on the time of day are possible. In the electronics sector, for example, it is advisable to reduce prices in the early evening for short-term increases in sales.
#2: Peak load pricing
With peak load pricing, prices rise as soon as demand increases. This is particularly useful when only a few suppliers offer the trend product in question or the product itself is scarce. However, you can also react the other way around – if you target your prices below those of your competitors, you can guarantee your sales when demand is high. For example, air fares are particularly high at times of high demand and passenger numbers – especially in summer and on Christmas holidays. Cheap suppliers, on the other hand, try to increase their market share in these times by offering slightly lower prices.
#3: Penetration strategy
A penetration strategy includes, among other things, strategic pricing with a view to market share. In order to gain market share as quickly as possible, an online retailer always sets its prices below those of its competitors. Once a certain share of the market has been reached, prices are gradually brought into line with competition. This strategy is particularly suitable when customers are not yet able to assess the quality of your products. They will be encouraged to try them out with low-priced offers!
Depending on your business model, individualized pricing may also make sense, where pricing is based on individual factors such as your customer’s location and device or user profile. But always make sure that customer confidence in your company does not ultimately suffer from a non-transparent pricing strategy.
Product segments: Use dynamic pricing strategies that are precisely tailored
A “watering can tactic”, in which you select one of the dynamic pricing strategies mentioned and apply it to all products, is not recommended. With this simplified application of dynamic pricing, you will be missing out on potential returns! Our many years of experience with online retailers show that intelligent segmentation of your products pays off the most. Find out in our article on pricing which segments are suitable for this kind of dynamic price management. Align your pricing strategy with the defined product segments and combine the three pricing strategies. In this way, you can fully utilise the possibilities offered by dynamic price differentiation.
Ensure that you remain competitive with dynamic pricing strategies
Regardless of which mix of dynamic pricing strategies you ultimately use: to implement dynamic price adjustment, you need a comprehensive overview of how prices develop in your market. In contrast to brick and mortar retail, eCommerce offers customers convenient ways of comparing their prices with those of their competitors. And they use the possibilities: according to a study by the marketing company intelliAd, only one in three customers buys a product directly from the web shop in which they have started to search for it. With such low loyalty, it is crucial to your online shop to be aware of the fluctuations in competitors’ prices. For which products are prices currently rising? In which product segments can price increases be recommended without you suffering sales losses? Where does it make sense to reduce prices in view of the current market situation?
Our big data platform blackbee provides you with answers to these questions – in the form of reliable data with which you can successfully implement your dynamic pricing strategy. Get free trial access now.