According to Tim Walker writing for The Guardian, the days of fixed pricing appear to be coming to an end. The traditional concept of RRP or ticket price has gradually been eroded and now there are many exciting opportunities for dynamic, personalised pricing models.
"It used to be about where to buy to get the price, now it’s about when to buy to get the best price," says Mike Fridgen, CEO of Decide.com.
Dynamic Pricing is Smarter Pricing
Obviously, dynamic pricing has been around a while in airline and travel businesses – and even in bars and restaurants with “Happy Hour” pricing. Now, because of the influx of digitalisation, dynamic pricing is everywhere in retail, helping to exploit a customer’s willingness to pay and to introduce more sophisticated price differentiation models.
Onno Oldman, Netherlands Managing Partner of Simon-Kucher, advises starting with a simple, step-by-step approach to dynamic pricing, e.g. implementing dynamic prices, say, only at the weekend. Once your customers become accustomed to this you can slowly expand your dynamic pricing by introducing a predictive algorithm or by experimenting with machine learning.
Now, any retailer that doesn’t have some form of dynamic pricing risks missing out on increased margins when competitors run out of stock, or losing sales when a competitor lowers their prices.
According to an RSR Research Study, 65% of ‘Retail Winners’ overwhelmingly find dynamic pricing more effective than price matching and 46% of others agree with that statement. The key here is not always about being the lowest price but about pricing more intelligently according to internal and external variables, such as stock levels and competitor prices. Timely, accurate, real-time data is required in order to be a success.
With dynamic pricing, retailers stay up-to-date on competitors’ prices and boost their revenue goals by incorporating market trends. It also allows them to identify when it’s opportune to raise prices without negatively affecting revenue. If you are managing a large number of SKUs it is particularly beneficial.
True, most retailers can’t afford to be as aggressive on price as Amazon but pricing software allows you to make sure your prices never go below a certain price and can incorporate other pricing variables, besides competitor pricing, into the equation. Undoubtedly, carefully implemented price changes at the right time can be a win-win for both retailers and consumers.
“Dynamic pricing in retail is plagued with misconceptions, but Amazon’s success with it proves that it is worth the time and effort. While customers might take some time to get used to the concept, rest assured they will”, says E-consultant Min-Jee Hwang.
The basic concept of customised pricing is that customers all have a differing “willingness-to-pay” for similar products according to their lifestyle, life stages and income. Research by consumer trends consultants Foresight Factory shows that customised pricing models can help to entice new customers and differentiate retailers. It also allows the retailer opportunities to upsell and cross-sell. However, much of this trend does depend on consumer willingness/consent to share their personal data.
Giles Lane, Associate with Ashfords, a national provider of legal, professional and regulatory services, writes that AI (artificial intelligence) is now close to being able to ordain the maximum price an individual would be willing to pay for the particular good/service that they are viewing online and “smart shelving” (shelving with electronically displayed prices) has enabled retailers to manage their high street pricing with increasing flexibility. In combination with Bluetooth technology, smart shelves offer specific customers a price based on data transmitted from the customer's profile held on their device.
Personalised pricing builds loyalty and allows businesses to generate revenue through the lifetime of individual customers. As long as the business is transparent about the data they are collecting, obtains consent to the collection, transfer and processing of that data – and allows consumers to opt out if they wish, then this pricing strategy should provide a two-way benefit for both consumer and retailer.
Other customised pricing strategies are:
- complementing fixed prices with an invitation to engage in a pricing dialogue, online or offline. 66% of global consumers have said they would like to be able to negotiate prices whilst shopping online.
- offering flexibility: pay-as-you-use, split payments or try-before-you-buy.
Dynamic and personalised pricing are thought to be part of the brave new world of pricing. However, as Tim Walker explains: “In some ways dynamic pricing is simply a return to the days long before supermarkets, when traders would judge how high or low a price to haggle from a customer based on factors as simple as the sound of their accent, or the cut of their cloak.” Fancy that!