Dynamic Pricing: A Money-making Strategy for Ecommerce Businessesdynamic Pricing: A Money-making Strategy for Ecommerce Businesses
Dynamic pricing is the concept of using flexible prices instead of fixed ones. It has been a powerful piece of ecommerce pricing strategy for years now.
The dynamic pricing model has been a rage with some of the tech giants like Amazon and Airbnb. Amazon, for instance, changes its product prices every ten minutes. They do this to keep up with fleeting shopping trends and out beat the competitors' prices.
If you’re looking at leveraging dynamic pricing for your store, we’ve got you covered. We'll answer questions about dynamic pricing in ecommerce, and cover the pros, cons, and real-world examples of brands implementing dynamic pricing to make it easy for you to get started.
What is dynamic pricing?
Dynamic pricing is a scalable repricing strategy, where a business adjusts its prices throughout the day. The prices vary based on a set of key factors. This includes supply, demand, market trends, consumer expectations, competitor pricing, and industry standards.
There are a lot of differences when you compare dynamic pricing vs static pricing.
Let’s understand this better with the example of the ticketing industry. When you use static pricing in the ticketing business, you will be charged the same rate. This is regardless of when the customer purchases the ticket or uses it.
Dynamic pricing in ticket pricing refers to automated price adjustments. Businesses will sell the same ticket at different prices to different people at different times.
Dynamic pricing vs Static pricing strategies
Advantages of dynamic pricing
“The single most important decision in evaluating a business is pricing power.”
— Warren Buffett
Dynamic pricing helps retailers remain competitive, regardless of what changes may occur. Here are some key advantages of dynamic pricing:
Increased profits per sale
By far, the biggest advantage of dynamic pricing in ecommerce is to capture more sales. Instead of settling for a fixed price, retailers can update their prices multiple times a day to capitalize on market trends. With this level of flexibility, the business can better react to customer demands.
While low prices will give you a boost in sales, increasing the price when the demand is high, will help you maximize the profits. Dynamic pricing also gives you a fair idea of the maximum price your customers are willing to pay for a product. Better yet, you can stay on top of seasonal trends. For example, the upcoming holiday season will have shoppers splurging a little more than usual. This concept is called seasonal pricing in ecommerce.
Dexter is built to help Shopify DTC brands take their monthly sales to the next level. You can A/B test product prices and discover in-depth insights that will help you raise prices and ring in more sales.
Adjusting to the competition
Studying your competitors’ prices will help you identify price gaps in the market. Your business can move in and fill these gaps with better prices, features, products, and offers. A competitive pricing strategy offers a host of benefits.
It helps you stay ahead of the pack by updating your prices as per the current pricing trends. Using dynamic pricing, you can update your product prices in real-time to take advantage of the rise or drop in your competitors’ pricing.
Deep insights into customer behavior
Dynamic pricing allows you to gain greater visibility of your customers’ demand curve. You get to track at what prices customers are willing to make purchases.
You can also drill down details on:
Timing and frequency of purchase
The minimum and maximum price your customer is willing to pay for a specific transaction
Devices used for purchase
With the luxury of having all this customer data at your disposal, you can enjoy a world of possibilities when it comes to building personalized brand interactions. You can make real-time price adjustments, plan sales better, and the time your promotions right to maximize your profits with each customer.
Better product-line management
By leveraging dynamic pricing in ecommerce, you can be more precise with your SKU pricing. You can easily identify points of opportunity and control the demand for the items that you sell. Raise the prices for products in high demand (and possibly low on stock).
You can also get the overstocked products off the shelves by offering timely discounts. Moonship is a Shopify app that helps retailers increase conversions with AI-enabled personalized discounts.
Competitive advantage with automation
Manually repricing products is quite an uphill task. By using a powerful app like Dexter, you can reprice your products with ease as well as save time and effort in the process. This way, you can remain competitive and get customers to flock to your store by quoting the best prices in the market.
Disadvantages of dynamic pricing
Now that we have seen the pros, let’s quickly run by the cons. Dynamic pricing is complex in nature. Here are the main disadvantages of employing dynamic pricing in ecommerce:
Customer alienation
With dynamic pricing, you run the risk of customers seeing different product prices on each visit to your store. This could get your customer suspicious considering how repricing is not a common practice in ecommerce, as it is in the airlines and hospitality industries.
To avoid driving your customers away, make the switch to Dexter now. Unlike most price testing apps, you can reprice your products with the assurance that your customers will never be subject to frustrating, erratic price changes. Dexter tracks store visits, to show your customers the same price every time they visit your store.
dynamic pricing in ecommerce
Price wars
Adjusting your prices based on that of your competitors may lead to profit margin-depleting price wars. Neighboring gas stations experience this all the time. When one gas station lowers its prices, the other will lower them even further.
This could go on until one business reaches a point where it can no longer sustain itself at an extremely low price. This is where apps like Dexter can help. You can test the prices you see for your products on the market to get accurate data on what your customers are willing to pay.
Loss of sales
If not implemented right, dynamic pricing can be a turn-off for your well-informed customers. Your customers are researching the products they need before making a buy. Capitalizing on demand and taking up the prices, may drive your customers away to better options.
Examples of dynamic pricing in real life
Dynamic pricing is gaining ground in the technology-driven world of ecommerce. To capture more sales and attract new customers, businesses are offering the most competitive prices in real time. Two of the greatest examples are Amazon and Uber.
Amazon
The largest ecommerce marketplace retailer in the world has witnessed a 25% rise in profits on using dynamic pricing. Amazon monitors heaps of data including competitors’ pricing and its own transaction data. They then use machine learning algorithms to predict product sales and adjust their prices.
Here’s a snapshot of the price changes of the Apple MacBook Pro Laptop on Amazon.
Amazon Macbook pricing history on Amazon Keepa
Uber
Uber uses dynamic pricing to control what its customers pay them. Uber takes into consideration everything from traffic, weather, and local events to global news and sets pricing that works best for them.
When the demand is high, during a rainy day or a public holiday—Uber takes the surge pricing route and adds a multiplier to the fares.
How to use Dexter to set up dynamic pricing on Shopify
Dexter makes price testing simple for Shopify store owners. You can run A/B tests in real-time to monitor how users react to price variations.
Step 0 - Install Dexter
While you’re logged in to your Shopify store account, go to https://apps.shopify.com/dexter.
Click [Add app] and follow through with the installation. Once the installation is complete, Dexter will open up a new page that allows you to create a price test.
Step 1 - Select a product
To begin the test, you need to select a product. Click [Create My First Test] to see the list of your products.
Choose one from the list and click [Next: Set Price]
Step 2 - Set the price
You can choose to increase or decrease your price by a certain amount.
For the demonstration, I have raised the price by $35. The new price will be displayed on the traffic split based on our next step.
Step 3 - Split the traffic
Choose the portion of visitors who will see the updated prices. I’ve gone with the default 50-50 split here.
Dexter will cookie-track visitors to keep prices consistent across multiple visits from a single user. Once you’re done, click [Next: Launch the Test] and click [Launch] to get started.
As you bring in the traffic, Dexter seamlessly collects data to help you analyze the best price for your products. After you end a test, any changes that were made to your prices are reverted and you do not need to touch any code whatsoever.
Rely on the expertise of Dexter—the price testing app for Shopify stores
Dexter makes it extremely easy to price-test products. You can get set up and running with Dexter in minutes. The best part? Dexter equips brands with real-time analytics. This way you can deliver the best value to your customers and take your conversions up to a game-changing level.
Are you looking to optimize your pricing strategy and align it with your business goals? Try Dexter today and experience price testing that is powerful yet simple.