Apart from marketing, managing inventory, and taking care of logistics, as an online retailer, you must also determine the best price point for your products. This can be a daunting task because calculating your prices and staying on top of managing supplier costs takes time – time you could be spending performing other tasks for your business.
Not to mention the long hours you spend at the computer analyzing competitors’ pricing models and determining your customers’ perceived value of the product. But there are advanced strategies you can use to make pricing your products easier and more efficient: dynamic pricing and artificial intelligence (AI).
What is Dynamic Pricing?
The concept of dynamic pricing is to offer the right price to the right customer, for the right product, at the right time to increase your business’s revenue and profit.
With the use of big data, dynamic pricing allows you to price your products at the optimum price point based on your own costs, customer behaviour and competitors’ prices. This gives you a higher chance of increasing profits and revenue because you’re able to stay competitive and price your products according to sales volumes, customer behaviour, competition, and market trends.
This pricing model has been quite effective for many retailers. In fact, retailers that use dynamic pricing report sales growth of 2%-5%, as well as margin increases from 5%-10%. Walmart, for example, uses dynamic pricing and changes its pricing almost 500,000 times a month. Using dynamic pricing, the retailer was able to grow its global sales by 30% in 2013 and 2014.
Major online retailer Amazon, changing its prices as often as every 10 minutes, also saw success with this pricing model. The large e-commerce store saw a 27.2% increase in revenue and ended up being one of the top 10 retailers in the US for the first time.
Examples of Dynamic Pricing
- Rideshare companies: Uber automatically creates a “surge rate” when demands for rides are higher, which is usually during early morning and late afternoon, when people commute to work. Their competitor Lyft does this as well with “prime time”. The price applies to every user, whether they’re a loyal customer or first-time rider.
- Bars/Restaurants: “Happy hour” at bars and other entertainment establishments is typically at its peak when the workday ends, between 4pm-7pm. This is a time that attracts many customers. Establishment owners offer discounts on drinks to attract an even bigger crowd. As a result, these businesses have been able to drive more revenue because of appealing prices.
- Airlines: During the weekends and Fridays, prices for airline tickets are higher than on regular weekdays. This is because airline companies know that people are more likely to travel during those times. Pricing also depends on the type of seat, the number of seats remaining, and the amount of time before the flight departs.
- Hotels: During the Christmas and summer seasons, hotel room rates often climb due to increased demand. The hotel industry also alters its prices based on the size and configuration of its rooms.
- Electricity: Utility companies often charge higher prices during peak usage periods, which is often during the day.
Artificial Intelligence: The Future of E-Commerce
Dynamic pricing is a great model to price products more quickly and efficiently. But because you have to make so many marketing and pricing decisions, pricing can still be a complex and time-consuming process. You have to manually analyze your own internal sales data and external factors to keep up with the constant changes in the market.
An effective solution to this problem is artificial intelligence (AI), which can automate dynamic pricing. AI uses advanced technologies to perform tasks that require human cognitive behavior such as visual perception, decision-making, and speech recognition. AI systems for e-commerce companies can look at customer behaviors and give you a list of actions you can take to reach your desired goal.
Using AI, you can tailor your pricing based on current users of your e-commerce website and their different behaviors. You can also use AI to increase your pricing when you know your competitors’ stocks are running low. Many consumers would be willing to buy your product for a higher price if your competitor doesn’t have it in stock, especially if they can get the item sooner. Also, when conversions are low, you can use AI and dynamic pricing to lower your prices to help you reach your desired conversion rate.
By implementing AI into your e-commerce strategy, you can:
- 1. Gain a better understanding of e-commerce buying trends
- 2. Identify patterns in data to reveal pricing gaps and missed opportunities
- 3. Predict prices based on data and patterns
The above-mentioned capabilities are just scratching the surface of what’s possible through AI. There are many more capabilities AI will be able to accomplish for years to come. In the future, you may be able to use AI to advise retail categories teams to make changes to pricing strategies. This could be done through automated analysis of performance data. AI-powered systems may also be able to automatically develop and implement new pricing strategies based on the goals you enter into the system.
The world of artificial intelligence and dynamic pricing may be daunting to you at first, but they can help you automate and optimize your pricing strategy, thus, making the process faster and more efficient. When you put the two together, you can better fit the needs of your potential customers and increase your overall profit margins.
At PriceEdge, we offer a pricing solution that can help you automate everyday decisions, remove the risk of human errors, and improve your revenue and profits all on one platform. Our AI-powered software can track competitor prices, automatically analyze your e-commerce pricing, set pricing rules, and integrate to your web store.
Are you ready to supercharge your e-commerce pricing strategy to drive more revenue and sales? Request a demo today.