Been googling about dynamic pricing lately? It’s no rocket science, so relax. In this blog post, let’s go over what dynamic pricing is and how it will benefit your business. Once you are familiar with dynamic pricing, there is a good chance that you will end up increasing your sales and revenue.

In the beginning phase of business, taking care of your business plan, marketing strategies, pricing strategies, inventory management, and so on can be really tiring. If not all, I have tried breaking down dynamic pricing for you with real time examples. So, forget about all that confusing jargon and enjoy learning dynamic pricing!

So, here goes.

What is dynamic pricing? – In layman terms

Dynamic pricing, also called “surge pricing” is just a term that refers to flexible rates of a product based on certain conditions.

For example, if a product suddenly becomes the talk of the town, it’s going to be on demand. If you sell it, you’d be selling it for a slightly higher price than normal because people want to buy it.

Similarly, if a product loses its demand and becomes a slow moving product, you’d want to clear your inventory by selling it for a discount. Right?

That’s how the world works. And that’s what we call dynamic pricing. Adjusting the prices based on certain criteria.

Not only demand / supply, but there are a lot more variables dynamic pricing can account for. The below image perfectly shows the different factors based on which you can alter the prices of your products.

Infographic

Source : PrimaSeller

Time, demography, demand – supply, customers, competitors. These factors are universal.

Time – Watch for a frequency. If your sales volume is high during a particular time, say 6pm – 9pm, then do not give discounts at that time. Because customers are paying full price anyway. But, if the sales is not picking up, give discounts during a particular time to create an urgency in the customer’s mind.

For example, you know that you have a good traffic between 6pm and 9pm. So, use that time and create an offer saying – “Happy hours between 6pm and 9pm. Get 10% discount!” or something in that line to convert visitors into customers.

Again, this time period depends on what you sell. If you sell office essentials, 9am – 5pm would be a more viable time. So, watch for that frequency.

Demography – Demography includes place, type of people you sell to, their age, preferences, etc. For example, you could give a discount to a particular shipping zone to improve your sales there.

Let’s say you want to attract more customers from Berlin and Dortmund. You can make use of demography based dynamic pricing here. The discount could be anything ranging from a price cut to free shipping. But, the gist is, you can adjust your pricing based on such demographics.

Demand & Supply – As I mentioned earlier, this is basic economics. When demand is high, you sell without discounts and probably at a higher price. When demand is low, you give discounts.

In the eCommerce world, you can determine which product is moving towards high demand and which product is becoming a surplus stock from the quantities purchased by customers. That is, when a product is moving in bulk quantities, it denotes that the product is doing good, and can soon be in demand. Whereas, if the stock of a product hasn’t moved much lately, you could club it with fast moving products or give a price cut for purchasing above a certain quantity.

Competitors – We can’t help looking at our neighbours, can we? For competitive pricing, you can adjust your product price according to what’s going on in the market.

We can often see competition between different brands in our real life. For example, Amazon Vs. Walmart. Although Walmart is a brick-and-mortar store and Amazon is an eCommerce giant, the competition is real when it comes to the pricing. There are numerous other real life competitive pricing like Domino’s Vs. Pizza Hut, McDonalds Vs. Subway and so on.

However, adjusting your prices solely based on your competitor’s pricing could prove negative to your store.

Constructive competition is good, obsessive competition is not.

Customers – This sums up all that we spoke about till now. Even demand and supply is created by the purchasing tendency of customers. But, in particular, you can target a specific user group and come up with something like members-only offer. For example, take Amazon prime. It is a membership program that gives exclusive priority to Prime members than other users.

You can also give discounts based on how much your customer purchases. That is, different discounts for different order totals or quantities. This counts as dynamic pricing as well because it varies from customer to customer.

Let me give you some detailed real time examples for a clearer understanding.

Examples of Dynamic pricing

Dynamic pricing is everywhere. The best examples are airlines, hotels, and the familiar Uber and Amazon.

Let’s take the hotel industry. The prices of rooms are often adjusted based on the type of the room and the amenities offered. That is, if a deluxe room with basic amenities costs $120 per night, a suite room with all the amenities like a living area, mini-bar and a kitchen would cost around $1000.

Here’s an example of a luxury hotel: HotelExample

And the prices again may vary according to the extra amenities like free breakfast.

During peak times such as the spring season when a lot of tourists pour in, the prices may go up depending on the demand for rooms. During the dull business days, the prices are rather regular.

Uber is another everyday relatable example for dynamic pricing. When the traffic is at its peak, the fares are higher than regular days, right? Why? The demand is surging up and the price is surging up too. Simple.

Alright. So, if you implement dynamic pricing on your website, will you be able to profit from it? Most probably, yes. Here’s how.

Increase your ROI using dynamic pricing

ROI is nothing but the return on investment. You invest a certain amount of resources like time and money to set up your dynamic pricing. How can you get a favourable return?

Let me explain with an example of the famous player in dynamic pricing – Amazon. They test their pricing, and tweek it according to purchase behaviour of the customers.

amazon

According to this write up , a study by Boomerang Commerce found that Amazon price-tested a popular $350 Samsung TV for six months before discounting it to $250 on Black Friday. This worked in favour of Amazon compared to other competitors selling the same TV.

But at the same time, Amazon increased the price of a HDMI cable that people would buy with the TV. Now, not a lot of people would notice this. But Amazon neutralised the price cut by increasing the price of another product with the same likelihood of sale.

Even in the below image, they have different prices for different variants, ranging from used TV to new TV. There’s also a protection plan in addition. These factors add extra dimensions to the dynamic pricing.

AmazonProduct

Coming back to the question, how did Amazon reap a profit from their investment?

They invested in the price-testing. They carried out the analysis and implemented the dynamic pricing. When it worked out, they not only got more sales for the TV, but they also got more sales (and more profit) for the HDMI cable. And they won the title of “Lowest price” tag.

Clever? That’s dynamic pricing for you.

How will dynamic pricing benefit your business?

Enough said about the technical stuff. The more important thing is to know how dynamic pricing will affect your business. I wouldn’t say it is the greatest pricing strategy and that it has no disadvantages. Let’s go over both the pros and cons of dynamic pricing.

Pros

  • Faster stock movement and increase in sales volume.
  • Better understanding for customer behaviour and sales trends. You get a clear idea of what price works the best after subtle trial and errors.
  • You could avoid giving discounts to the wrong products (the ones that will sell anyway).
  • Customer shopping experience improves because of good deals.

Cons

  • Can confuse customers if price changes frequently.
  • If you don’t use the proper tool, and go about reducing your prices to compete with a rival brand, you might end up giving your product for a price too low. When you do it right, the pros stand out brighter than the cons. With such benefits, wouldn’t you want to give a shot by implementing dynamic pricing on your online store?

Why use a tool for dynamic pricing?

Imagine a situation where you have fixed prices for all your products. When you want to give discounts, you go about changing the prices of all the products that come under the discount. Now, how much time would that take?

Even if you have less than 20 products in your online store, changing the price manually would become a boring chore, seemingly taking up a lot of time.

What if you could apply discount on a product automatically based on the conditions you set in prior? Yes, it eliminates the need to keep track of the prices every minute. That is what dynamic pricing does. It makes things easier for you. It makes your pricing dynamic.

That is why you need to use a tool that suits your online store for the various pricing you offer.

If you are wondering what kind of tool your should be using, then let me address that part for you as well. Since dynamic pricing is a combination of the stuff we discussed till now, you would obviously need a tool that is able to perform most of them without flaw. Right?

In that case, I’ve got a suggestion for you. If you are running a WooCommerce online store, the Woo Discount Rules plugin could be your ideal tool for dynamic pricing. Because this plugin is capable of providing flexible discounts in a neat and simple way. And guess what? It comes in both free and pro versions.

Afterthoughts

I hope you have understood the working of dynamic pricing now. This is the first blog of WooCommerce Dynamic Pricing, and we are glad to have you in our early steps as our reader. This site is entirely for educating and helping eCommerce business owners to learn and understand different pricing and selling strategies.

Leave your comments below and let us know what you think of dynamic pricing.

Do you have a WooCommerce online store? Check out how you can set up the dynamic pricing for your store.