Updated: May 9, 2022
If fluctuating prices bother you as well this article is just for you! Scroll till the end to know all why prices change more often and how dynamic pricing plays a role in the market.
What Is Dynamic Pricing?
The term "dynamic pricing" refers to a pricing approach that uses changeable prices rather than set prices. It is when a corporation or store alters its prices regularly during the day. Instead of choosing single pricing for the season, shops might change their prices many times every day to take advantage of the always shifting market. There are two reasons for these pricing modifications: first, firms seek to maximize margins, and second, they want to boost sales opportunities.
Walmart recently started testing E-Price Tags, the company is testing two different types of shelf labels for the same concept which is to see if electronic shelf labels can be controlled through programming as quickly as price changes. Other retail chains such as Best Buy and Target are also testing electronic shelf labels in some locations.
Pricing in E-commerce
You might have noticed frequent price changes in your Uber App for the same route. Uber uses sophisticated artificial intelligence and machine learning to determine the best price for you and the company. A few factors that decide price changes are:
Traffic in the Area
Time (Usually, Uber charges more at night)
Availability of Drivers
Location (Ride to popular spots)
Competition (Uber sometimes offers cheaper rides to beat down competition)
Instead of being overwhelmed by the fast-paced dynamic pricing problem, e-commerce businesses such as Amazon have taken advantage of dynamic pricing by modifying their prices at the same quick rate as market demand. They stay one step ahead of their competitors by doing so, and they almost always have the most enticing deals first. One thing to keep in mind is that the "perfect" price is not necessarily the cheapest.
Many e-commerce businesses have overlooked this point, resulting in promotional conflicts with competitors and the loss of valuable profit margins. Amazon, on the other hand, is fully aware of this reality and incorporates it into its strategy by employing KVI pricing and other measures in its dynamic pricing procedures.
Dynamic Pricing In Retail
For retail stores, dynamic pricing has several advantages. Target and Walmart are two well-known retail behemoths that frequently employ dynamic pricing.
Walmart adjusts pricing 50,000 times each month, and its online sales surpassed Amazon's in 2013, with a 30% rise. Dynamic pricing is used by retailers like Target and Walmart to remain on top of rival pricing and pricing trends to avoid falling behind the competition. Dynamic pricing, on the other hand, might be difficult to control. As a result, many retail stores are using technology to automate what was formerly a human process.
Pros & Cons
Dynamic pricing provides sure-shot benefits to retailers and e-commerce stores. It boosts sales if prices are lowered. If prices are increased then it helps to maximize profits. It can also create higher demand. The demand curve for each consumer becomes easy to compute with dynamic pricing. More insights into consumer behavior may be gained with this additional information, making it more probable that a transaction will occur. Additionally, with pricing automation software, time and money can be saved.
However, the dynamic pricing method comes with a few disadvantages too. Firstly, consumers are often aware of the dynamic pricing strategy. They are aware that if they purchase an item more than once, the pricing for the product could increase. Therefore, they browse in private or incognito mode to make it hard for corporations to track their purchases. Second, customers detest dynamic pricing as they feel that they are being overcharged when they could have paid less for the same product somewhere else. This can create a rise in negative sentiment towards the store or corporation. Dynamic pricing can also lead to price-related conflicts between corporations and stores.
The Future Of Dynamic Pricing
Through the use of price automation software, many of the disadvantages of dynamic pricing are eliminated. The price optimization software has been proven to increase gross margins by at least 10% and has a significant influence on sales and profits.
Retailers who utilize in-house or third-party dynamic pricing software may specify repricing criteria to guarantee that their pricing always maintains their brand identity and never drops below cost, putting to rest any doubts in the minds of consumers. As an extra plus, there's no risk of inadvertently entering a margin-eroding pricing battle. Keeping these factors in mind, dynamic pricing seems to be the future for retail and e-commerce stores alike. Over the last decade, the globe has witnessed remarkable technical advancements, with dynamic pricing being one of the most significant. It's becoming the industry norm, and this popular method appears to have a bright future.
It is quite understandable by now how dynamic pricing plays its role and why these prices change often. Hope the article helped!