Implement dynamic pricing in the online shop

The right pricing strategy is one of the most important levers for retailers to optimise sales. With dynamic pricing, prices are dynamically adjusted to the market. Factors such as competitors’ prices, available supply and current demand determine the respective price. This type of price management is commonplace in the offline sector and, more importantly, accepted by consumers.

What does dynamic pricing look like?

Mineral oil companies are probably the best-known representatives of dynamic pricing. Prices for petrol and diesel change several times a day. The petrol station nearby offers cheaper fuel at the pumps? Quickly bring the prices up to the same level! Due to low water on the Rhine, there is a shortage of fuel? Low supply with consistently high demand increases the price!

Airlines, the hotel industry or tour operators in general also resort to dynamic price management. At popular travel times, in the peak season or during holidays, there is increased demand and a holiday immediately becomes more expensive.

Acceptance of Dynamic Pricing

The study on customer experience in German retail by the management consultancy PricewaterhouseCoopers shows the high acceptance of price adjustments: On average, six out of ten respondents accept dynamic pricing in e-commerce – under certain conditions.

Respondents consider dynamic prices to be particularly useful for seasonal goods (84 percent) and products with low sales (83 percent), at certain times of the day (64 percent) and in online shops (61 percent).

Price regulation according to supply and demand, i.e. price increases when demand is high and price reductions when demand is low, is considered sensible by only 42 percent of respondents. Daily or even hourly price changes are already rejected by the majority (76 percent).

But dynamic pricing is not accepted equally for all product groups. The respondents consider price differences in the following categories to be sensible:

• 64 percent for travel
• 62 percent for clothing and shoes
• 51 percent for electrical appliances
• 48 percent for furniture
• 47 percent for food
• 46 percent for concert and event tickets
• 45 percent for electricity and gas
• 41 percent for petrol stations
• 41 percent for toys
• 41 percent for films and music
• 41 percent for building materials and do-it-yourself
• 38 percent for jewellery and watches
• 37 percent for cosmetics
• 25 percent for medicines and health products

Four out of ten respondents accept dynamic pricing for almost all product groups, except for medicines and health products.

If we now look at the average age of the respondents, it quickly becomes clear that acceptance is highest among the target group aged 18 to 39. The target group that has already grown up with the internet also has the highest acceptance for dynamic pricing.

Does Dynamic Pricing change consumer behaviour?

Consumer behaviour has already changed fundamentally through online shopping. The pressure from the large number of competitors is enormous. Consumers are generally no longer so tied to one brand or one job.

Consumers go much more by price when buying products:

• 78 percent compare the prices of different online shops before deciding on a retailer. For higher-priced products, even more time is spent on price research.
• 74 percent use price comparison sites and 46 percent even use the option of setting a price alarm.
• 53 percent try to find the best price by visiting shops on different days of the week and at different times of day.
• 38 percent do not make any price comparisons, but buy products when they are needed or wanted.
• 26 percent assign a subordinate role to the price and make the purchase decision based on the brand and the buying experience.

The right pricing strategy is essential for the success of the online shop. Dynamic pricing gives you the opportunity to reach new customers and increase margins.

Implementation of Dynamic Pricing in the online shop

But how do you go about implementing dynamic pricing in an online shop? First of all, your own products and services must be recorded as use cases and analysed with regard to the acceptance of dynamic pricing.

Sales data from the past help to analyse the margin potential. What effects did previous price changes have?

The next step is to determine the factors for dynamic pricing. Is the price set based on competitors, stock, season, willingness to pay or a combination of the different factors?

Once the basics have been established, it is a matter of testing dynamic pricing for the use cases and then evaluating the results. Does the pricing strategy work? Are the results satisfactory? What can still be optimised? Then the go-live can be planned.

There are different tools for implementing dynamic pricing. The best way to find out which is the right one for your online shop is to test the different technical tools.

Using dynamic pricing successfully in the online shop

Dynamic pricing has been adopted as a pricing strategy by consumers and can increase sales and thus margins. However, in order to use dynamic pricing successfully, there are a few things to keep in mind: Price adjustments are not accepted equally for all product groups. Tests in advance provide conclusions on how and whether customers’ buying behaviour changes. With the selection of a suitable tool, price adjustment in the online shop can be automated and further optimised. Taking all points into account, dynamic pricing can make the online shop more successful.