Pricing is one of the most major decision-making elements in an online store. The pricing strategy a business implements can either make or break their store. The eCommerce market is tough, with every business trying to outshine the other, where prices are the first thing you will notice varied among them. And naturally, your customer gravitates more towards the cheaper option.
Many businesses have fallen prey to this assumption and have taken a big hit on their profit margins. But what if we tell you that you can strategically price your products, increase sales, and don’t even lose profit? By dynamically pricing your products, you can create the optimum price that is suitable for your customers and beneficial for your business as well.
In this article, we will cover what dynamic pricing is, its benefits, and different strategies to implement it in your store. So without further ado, let’s get started.
What is Dynamic Pricing and how does it Work?
Simply put, dynamic pricing refers to changing your product pricing based on the market and the customer supply and demand. For example, cutting down the prices when sales are less and increasing them when customer demand is high. It is curated to get you the best price for your customers without losing your profit. This is why dynamic pricing is one of the most effective ways to increase traffic, attract customers, and increase sales.
When devising a dynamic pricing strategy, you need to have detailed data about competitor’s pricing, industry pricing, and customer behavior. These 3 elements together can help you create the perfect pricing for your products. But how? Because dynamic pricing does not think of a static price to go with, instead it fluctuates with the supply and demand of the current times. For example, slashing down your prices for a certain period might lose you the profit but it will increase traffic and conversion rate.
Well, this sounds all nice and good, but how do we implement it? With the huge amount of data required to implement dynamic pricing, an algorithm is required. Thus, with the help of WooCommerce dynamic pricing plugins, you can also benefit from increased sales and revenue. But you can’t leave your business entirely in the hands of a machine, human input is also crucial.
Benefits of Dynamic Pricing
- Increase Sales
People often view dynamic pricing as a way to increase site traffic which ultimately leads to increased conversion rates and sales. By implementing a dynamic pricing strategy to your online store, you can boost sales by slashing down prices when your store is doing poorly in sales and increase prices when you have a good customer base available.
- Increase Profits
Even when you are lowering your prices, you are still making a profit with dynamic pricing. Dynamic pricing analyzes your competitor’s price and customer demand and prices your products accordingly. For example, if you are selling your product at a considerably lesser price, let’s say $5 than your competitors, which are selling it for $7, and there is demand for your product, then you can increase it to about $6 or more so that your customers are favored towards your business and you make a profit.
- Understand Customer Behavior
Dynamic pricing requires huge amounts of data to work. One such data category is analyzing customer behavior. Through this data set, you can collect customer demand, their willingness to pay a price limit, their peak shopping time, the device used, purchase history, and much more. Such insight can help you increase sales and create further successful marketing campaigns.
- Always be in Demand
Use desperate times to your advantage with dynamic pricing and always be in demand. Dynamic pricing also analyzes the market and industry to see the retail price of products and then prices them on your site accordingly. One of the most beneficial features of dynamic pricing is that you can use seasons, hours in a day, or certain days of a week to decrease or increase your prices, depending on the demand.
eCommerce Dynamic Pricing Strategies
There are multiple types of dynamic pricing strategies available which can be easily implemented. Find out which one works best for your business.
- Time-Based Pricing
The time-based pricing strategy is very commonly employed in businesses, either retail or online. It refers to the increase or decrease of price depending on the age of the product, the time of the day, or the exclusivity of a service. For example, it is common practice to lower the prices of older products in stock when new products arrive, this leads to an increase in sales. Similarly, you can also increase the price of faster services, same-day delivery, and much more.
- Penetration Pricing
Another way to attract customers to your newly opened business is by employing penetration pricing. This involves pricing the products at lower prices initially to gather a large crowd of consumers so that they get familiar with your product. And once you have a solid customer base acquired, you can increase the price gradually.
- Peak Pricing
Peak pricing is also a commonly employed dynamic pricing strategy. It refers to increasing the price of a product or service during peak hours or seasons. This is usually employed in the holiday season where hotels or gift companies increase their prices because they know the demand is high and the competition is less.
Dynamic pricing largely depends on market conditions to price your products. Thus, market-based pricing is also a good way to sell your products, but this could go either way. Either the demand could increase, which would result in higher prices and revenue or it could decrease, which in that case, you would have to lower your prices as well. The uncertain times of 2020, where the price of hand sanitizer and masks reached incredibly high, leads you to believe that anything can happen.
- Segmented Pricing
Segmented pricing can be highly beneficial as you can cater to multiple customers by segmenting them and pricing the products accordingly. For example, you can segment customers based on their address, their membership, etc. You can also offer your premium customers higher prices to offer faster service. You can also differentiate in product quality or features and price them accordingly so everyone can afford your products.
Dynamic pricing has its disadvantages as well, for example, customers despise the business if they find out someone else is selling the product at a lesser price, which decreases customer loyalty as they feel like they were cheated. Thus, a dynamic pricing strategy needs to be well-planned and carefully implemented to not lose your hard-earned customers.
Moreover, you can easily implement dynamic pricing on your site using any of the above-mentioned strategies by offering discounts, tiered pricing, and much more. But it’s important to keep trying out new things with A/B testing to see which works best for your business.