What is a Dynamic Pricing Engine?

As an online retailer, you know that your main focus is on offering the right item at the best time and for the perfect price. However, those who shop at your store have many choices surrounding them as well. The decision that they make depends on factors such as how fast they can get a product or service, the return policy, whether there are other models, what other people think, as well as the price.

In this article, we’ll focus on pricing. Pricing is incredibly complex, but it really doesn’t have to be.

How do you make it easier?

You can do so with the power of a dynamic pricing engine.

This engine is similar to that of an automatic vehicle because they change depending on a specific factor. However, automatic automobile engines change depending on what’s going on with the road while dynamic pricing engines change depending on what’s going on in the market.

But what exactly is dynamic pricing?

Let’s start with what it’s not, which is static pricing. On the contrary, dynamic pricing changes with the conditions that are thrown at it. In other words, it makes pricing flexible. You initially set a base price, but that price has the freedom to change depending on the circumstances. This allows you to have more opportunities to take advantage of in the long run. For example, its flexibility and power could potentially make your customers happier and they’ll be more interested in sticking around longer too.

Let’s dive deeper with an example.

Suppose you have a competitor who copies your every move. When you get a new item, they get the same one and match your price. Dynamic pricing comes in handy when you’re trying to make your offering more competitive. For instance, you could offer discounts for buying in bulk or offer your loyal customer base savings off of their purchase.

What are the advantages and disadvantages of a dynamic pricing engine?


Advantages

Online retailers can use a dynamic pricing engine to reprice based on the prices of their rivals or based on the demand. The prices are dropped when the demand is low and raised when the demand is high. In other words, dynamic pricing stimulates demand and it’s very profitable. It’s also easy to put into action with the help of a dynamic pricing engine.

However, that’s not this engine’s only use. In fact, it provides lots of important information. For instance, you can see revenue results in real time, so that you can identify the sweet spots and improve your internal strategy. Another benefit of using a dynamic pricing engine is being able to see what your rivals are selling and for how much. Additionally, with price automation you don’t need to do anything manually, thus eliminating human error and giving you more time to spend on other important tasks. Also, dynamic pricing engines positively impact ROI.

In conclusion, stay ahead of the competition with all of the information and insights provided to you from a dynamic pricing engine.

Disadvantages

If you ultimately decide to use dynamic pricing, you may irritate some customers, suffer a decrease in customer loyalty, and your number of competitors is likely to increase.

First of all, your customers may become angry with you, should they find out that they’ve been subjected to price discrimination. You could also potentially push them away with your constant price alterations. In return, this would impact your customer loyalty, which could negatively impact the image of your brand as well.

On top of that, because your customers have come to realize that you’re engaged in dynamic pricing, they’ll most likely look into the pricing of your competition to figure out where they would get the best bang for their buck. This is especially easy to do online since within minutes, they can compare the prices of a specific product or service across a large number of companies.


Choosing a Dynamic Pricing Engine

The motivation behind purchases made online isn’t always the price. In fact, according to the report “New Retail Ecosystem: from disrupted to disruptor” conducted by PwC, 32% selected convenience as their main reason for buying online. As a result, although this article is about the price, don’t neglect other factors such as a convenient shopping experience. However, if you want to stay ahead of your competition, using a dynamic pricing engine may be exactly what your company needs. You can become an effective manager and maximize your profits with the dynamic pricing software, Competera.