The Importance of Dynamic Pricing

What is Dynamic Repricing?

Imagine opening the Uber app on a busy Friday night – ride prices are much higher compared to a quiet Tuesday morning. This is an example of dynamic pricing, where product prices adjust continuously based on current market conditions and real-time supply and demand.

In more competitive markets, price fluctuations become more frequent. Consider Amazon, a highly competitive marketplace where prices adjust every few minutes due to intense seller competition and shifts in buyer demand and price elasticity.

The chart illustrates dynamic pricing basics. On the left, envision a static ticket price for a concert venue. On the right, observe how they adjust prices — premium during high demand and discounted during quieter periods. Dynamic pricing, as depicted, enables the venue to optimize revenue effectively.

Consider dynamic pricing in financial terms, similar to how the stock market works with shares going up and down. Just like dynamic prices, the value of shares is determined by factors such as demand, the specific company, and the overall state of the economy. Prices, like shares, are changed to maximize your return.

Why Utilize Dynamic Repricing? 

Dynamic pricing is now widely embraced by brands, sellers, and private labels to stay competitive in a constantly evolving marketplace. Your product pricing significantly influences both your profit and sales velocity. Considering market changes, seasonality, and evolving business goals, strategically optimizing your pricing is crucial.

1.Maximize Sales Without Compromising Margins

Today’s consumers are always searching for the best deal — 44% of shoppers say they will buy sale items over regularly priced items, according to our annual Consumer Survey report. 

Ensuring your customers get the best deal is a surefire way to spark demand. However, setting your price too low may squeeze your margins. Herein lies the challenge: finding that delicate balance between demand and profit. To strike the perfect chord, many sellers have embraced dynamic pricing.

While some dynamic pricing solutions only react to competitors, relentlessly pushing sales down even at the cost of profits or triggering price wars, there are smarter, more sophisticated options. These solutions continuously seek the optimal price, making real-time adjustments based on various factors. The goal is not necessarily the lowest price but the one that maximizes sales without compromising your margins. This approach allows you to stay responsive to the market, offering competitive prices without sacrificing profitability.

2. Flexible For Every Business’s Needs

From revenue and profit to liquidation, businesses harbor distinct goals, often evolving over time. Dynamic pricing, powered by strategic algorithms, empowers you to tailor pricing strategies for each product in alignment with your business objectives.

Customization strikes the perfect balance between revenue and profit, enabling you to achieve business goals at any product’s life cycle stage. Dynamic pricing solutions constantly monitor and optimize prices, assessing the impact of price changes on your sales demand.

3. Take Advantage of Seasonality

Market conditions are always changing, and one trend retailers always look to capitalize on is seasonal trends. This can include events such as:

• Cyber Five
• Back to School shopping
• Prime Day

With dynamic pricing, you can automate price changes, taking the headaches out of seasonality and demand shifts. You can take advantage of seasonality, shopper trends, and market fluctuations to reap the most profit during your busy seasons and set your strategy to focus on revenue during the slower months.

4. Maintain Brand Value

While dynamic pricing can be a valuable strategy for retailers, mishandling it has significant drawbacks. Negative consumer perceptions are already prevalent, with 52% of US consumers considering it akin to price gouging. 

When executed effectively, dynamic pricing becomes a tool for brands to align prices with their business goals. While many have concerns about losing control over price extremes, modern dynamic pricing solutions enable brands to establish target floors and ceilings. This provides a comfortable price range within which brands can operate.

This approach helps avoid the pitfalls of pricing too low, which could harm brand reputation, or pricing too high, risking customer trust. Instead, brands can set prices judiciously, meeting business goals while maintaining a positive customer perception.

5. Sustainable for Long-Term Business Growth

While short-term tactics, such as engaging in price wars on Amazon, can quickly boost sales by offering steep discounts and vying for the Buy Box, it’s important to recognize the limitations.

Competing solely on price may attract customers initially, but it’s not a sustainable strategy for long-term growth. Eventually, the race to lower prices reaches a point where profitability is compromised, hindering the potential for sustainable business expansion. Businesses should focus on strategies that foster sustainable growth rather than rely on short-term solutions like price wars to ensure lasting success. 

Dynamic pricing is a strategy that positions businesses for long-term growth. Modern dynamic pricing solutions continually adjust to market dynamics, gaining insights into the supply and demand for your product. What makes dynamic pricing even better is its flexibility to align with your evolving business requirements. This adaptability ensures its effectiveness as both your business and the market undergo changes over time.

6. Dynamic Repricing Is Easier Than Ever With the Right Technology

Keeping tabs on hundreds of thousands of products and staying on top of supply-and-demand trends poses a complex challenge, often exceeding the capabilities of most e-commerce businesses.

Dynamic pricing solutions can do the heavy lifting for your business, automating the process with robust data to establish optimal product prices. Seek an algorithmic repricer, such as Feedvisor’s premier solution, capable of swiftly adjusting to market conditions in near real-time through AI and big data.

What does an AI-powered repricer do? It typically consists of two key elements: predictive models that leverage historical data and an action selection component. These components work together, using the data model to optimize the system’s future behavior based on expectations.

Feedvisor’s predictive models analyze competitors’ historical data, predicting their future behavior based on factors like price changes, timing, and Buy Box performance. Basic repricers, with predefined rules, are easily exploitable as their behavior is predictable by our repricer.