Online retailers looking to gain margin advantage are increasingly using dynamic pricing: the practice of changing prices based on market conditions, consumer behavior and competitive intelligence, according to a new eMarketer report, “Dynamic Pricing: What Retailers Need to Know About Competing in Real Time.”
Amazon.com has used it in various guises since the turn of the century and as the technology has become widely accessible, more retailers have adopted dynamic pricing in order to compete with the dominant pure play, undercut one another and woo the ever price-sensitive American shopper.
The ability to react in real time presents opportunities for retailers but is not without its challenges. For many, strategy and execution haven’t caught up with the volume and variety of data available.
Once only available to retailers with substantial tech budgets and in-house talent, pricing intelligence tools are becoming mainstream as more third parties begin to provide affordable services.
Price-monitoring platform Dynamite Data’s research showed just how marked the frequency of price changes have become. Looking at a two-week period around Thanksgiving, when retailers use the holidays as a testing ground, major retailers made more daily price changes in the 2012 Thanksgiving season than in 2011. Both Amazon and Sears manipulated prices daily on around one-quarter of their products during the holiday period last year.
Though online battles between high-profile companies like Target, Wal-Mart and Amazon make headlines, a vast number of retailers do not use pricing intelligence. In the 2013 edition of Retail Systems Research’s (RSR’s) annual pricing survey, just 13% of retailers around the world had fully deployed any solutions. That may sound small, but the option wasn’t even included in the 2012 survey. Fifty-four percent of respondents were somewhere between exploring the idea and rolling it out. Separately, 23% cited gaining margin advantage through dynamic pricing as one of the top three business opportunities related to pricing.
Even as there’s huge potential for leveraging data, most retailers are stuck somewhere between the hypothetical and executable.
When RSR looked specifically at pricing, lacking all types of accurate data was a leading barrier to more effective practices for retailers worldwide. Internal resistance to change was of equal concern, and lack of talent was close behind.
Knowing as much as possible about one’s own products is fundamental, and that goes beyond pricing. Kris Kubicki, co-founder and chief architect of Dynamite Data, elaborated: “It’s the stock status, the availability, the ratings and the reviews of those products before you even start building a model. You’ve got to have everything set up before you start jumping headfirst into it.”
The full report, “Dynamic Pricing: What Retailers Need to Know About Competing in Real Time,” also answers these key questions:
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