Tuesday 19 August 2014

Why dynamic pricing is a must for ecommerce retailers

According to research via econsultancy.com, Dynamic Pricing - a pricing strategy in which prices change in response to real-time supply and demand - isn’t a new pricing strategy (American Airlines first introduced it in the early 80’s*), and it is currently taking ecommerce by storm..

Dynamic pricing allows retailers to lower prices to drive sales when demand is low, and to increase profits via higher prices when demand is high. 

Apparently, Amazon, one of the largest retailers that uses dynamic pricing, changes its prices every 10 minutes on average, while Walmart changes prices up to 50,000 times/month…

Econsultancy.com also lists dynamic pricing tactics with examples for online retailers:

- Segmented pricing: tiered prices from value to premium

- Peak pricing: to take advantage of fluctuations in demand

- Time-based pricing: to adjust prices according to the time of day or product life-cycle

- Penetration pricing: to set a lower price to encourage trial

For suppliers, dynamic pricing has to be the ultimate match of demand with price and will succeed in terms of satisfaction as long as the pricing mechanism is seen to respond 'instantly' and proportionately to changes in real demand...

* NB. Dynamic pricing needs care in application: For instance, suppose airlines sold paint?  

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