Online business has seen a massive uptick due to the pandemic. The e-commerce industry has exceeded levels not expected until 2025 and is predicted to make over $843 billion in sales in 2021. From groceries to clothing and electronics, digital platforms offer a wide range of products to potential buyers.
Online retail brings merchants many benefits, including 24/7 communication with customers, flexible working hours and the possibility to generate permanent earnings during the quarantine period. However, choosing a pricing strategy for an e-commerce business can be tricky. There are many well-known and effective pricing strategies. Knowing which one to use in a specific situation can give your online business a key edge over its competitors.
Dynamic pricing is the most famous and ubiquitous strategy. Everyone from Amazon and AirBnb to Uber and Target is using this strategy, and it is especially noticeable with the appearance of some sensational products on the market. In 2019, 25% of e-commerce companies were using dynamic pricing globally, and 11% intended to implement it in 2020.
Dynamic pricing is a pricing strategy in which products’ prices change based on supply and demand in real time. Round-the-clock monitoring, understanding of consumers’ willingness to pay and flexible prices provided by dynamic pricing can help retailers to increase profits by an average of 10% and increase sales by up to 30%. It gives retailers the opportunity to cut prices to increase sales when they are sluggish and to raise prices to make more profit when they are prosperous.
The key technologies that enhance a dynamic pricing strategy are:
Big data: This combines customer data and external data sources such as surfing behaviour into one dataset that serves as a basis for dynamic pricing algorithms. Big data analysis allows merchants to define current market conditions and optimise prices based on supply and demand.
Data science: Artificial intelligence enables automated algorithmic pricing. It analyses large datasets and detects consumer behaviour patterns, resulting in effective price recommendations. Machine learning allows non-stop processing of large amounts of data and powers the algorithms that predict sales and adjust an item’s price accordingly.
Also, there are programs that allow you to quickly and efficiently analyse the market. Price analysis software, for example, is already popular and 22% of retailers are using it. Automation can certainly increase your profits.
Retailers can capture multiple benefits from a dynamic pricing strategy, from detecting market trends and accelerated sales to increasing customer loyalty. Dynamic pricing has added an average of 2% to 3% to the consumer’s bottom line.
Moreover, dynamic pricing allows retailers to set different prices and observe their elasticity before finding the optimal market price. Here are some retail players that leverage dynamic pricing:
The tactics used by most online stores are similar. However, the dynamic pricing strategy can be applied in different forms. Four dynamic pricing models that could help you in the future are:
Online business can be very profitable if you do it right. Selecting an effective pricing strategy is a key element of running a successful business. Here’s a rundown of other pricing strategies to consider:
The e-commerce pricing strategy you choose should be determined by the size of your business and the type of products and services you offer. After all, there is no best e-commerce pricing strategy that is set in stone.
Want to find out which pricing strategy could work best for your business? Get in touch today!
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