Dynamic pricing, depending on various factors, has a positive effect on sales and the overall profit of the trading company. This is the situation in general, but there are nuances that should be considered by merchandisers and managers who ensure the commercial success of their company.
The right pricing strategy is very important for any business, whether it is an industry leader, a mid-sized firm or an organization just starting out in the marketplace. When prices change frequently, the direction in which they move must be in the seller’s objective interests.
Taking into consideration the importance of dynamic pricing, it is worth to understand in detail when it is profitable to increase figures in price lists, and when it is better to decrease them. The subjective opinion of managers does not always coincide with the objective benefit. From this point of view, it is good if the sales manager convincingly argues for the actions he takes as part of the pricing strategy.
Elements of Dynamic Pricing
Kitting
Two prices are better than one when items differ in the composition of the kit, or they are different versions of a similar product. Say, for example, cars of popular colors sell for more than cars that are in low demand.
The kit may include:
- machinery parts;
- gauges;
- tools for maintenance and repair;
- a stock of consumables;
- parts for installation and assembly.
Customers do not have to buy the necessary items separately at inflated prices, and the seller buys the components at the wholesale base, where the cost is much lower than in retail. But not all customers need extended bundling of, say, appliances. It’s better to give them a choice. Such dynamic pricing is beneficial to both parties, so it is often used in practice.
Differences in bundling should be noticeable, and easy to measure for comparison. On the pages with descriptions and characteristics in the catalogs, it is necessary to emphasize the configuration differences. Preferably, comparative photos should be posted in galleries.
Demand
When supply is limited in the marketplace, prices naturally go up. Merchandisers should be aware of the current state of the market, as well as temporal and cyclical trends in the price of goods. When there is an oversupply, either reduce prices or temporarily withdraw that product group from the market. Excessive growth in the cost of incentives leads to losses and is not always economically justified.
Coupons and discounts
Customers love a variety of promotions and bonuses that entitle them to purchase good products at low prices. Periodic rewards for active customers or even all visitors to the site lead to an increase in the company’s popularity. Positive reviews about it are shared on social media, and this kind of information is of great value for market promotion.
The benefits of dynamic pricing
- Stimulates sales.
- Increases profits.
- Increases demand.
- Reduces seasonal costs.
Disadvantages of dynamic pricing
- Many consumers don’t like changing prices.
- Experienced customers wait for the next discount.
- Price wars.
One of the most unpleasant moments – the reduction of prices by competitors. It is advisable to calculate in advance to what level you are ready to lower prices, so as not to cross the line of economically sound measures. Dumping below the cost of production is possible only for a short time, to squeeze out competitors with very small volumes of business.
