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Dynamic pricing, the practice of setting a price for a good or service based on the real-time demand for that good or service and its availability or supply, may be the future of retail. The retail industry, following in the footsteps of travel and hospitality, knows that real-time price shifts online will not only buffer against showrooming—shoppers can't rely on prices online to be cheaper or quantities more abundant—but also maximize revenues. Prices rise and fall based on customer traffic, demand, weather, the time of day, loyalty card data and more.
The risk of price-competing against Amazon is greater for companies like Sears, a brand built on fair prices. But as a 360pi study revealed, though retailers should certainly consider intelligent real-time pricing schemes, few will ever be able to compete with Amazon in the dynamic pricing arena.
Over Halloween, 360pi, a firm specializing in competitive price intelligence, analyzed the 2,100 Halloween costume SKUs available on Amazon.com and matched those prices to those of other mass and specialty retailers from October 1 to October 27. During this period, Amazon changed costume prices on 15% of this merchandise every 1 to 2 days; specialty retailers such as Party City, Wholesale Halloween and Costume Supercenter changed prices much less frequently. Halloween was a $7.40 billion business in 2014, according to the National Retail Federation (NRF)—and whoever wins the pricing wars stands to take home a larger chunk of that massive sum.
The study showed that generic costumes like pirates and princesses had wider ranges in price variation between Amazon.com and specialized retailers when compared with character-based costumes like Princess Elsa from "Frozen" or Teenage Mutant Ninja Turtles. These character-based costumes showed less variation in price, no matter where consumers shopped. But 360pi acknowledged that the narrow price range could also be attributed to the fact that searching "Princess Elsa costume" will show up a similar product on different sites—costumes that specific are just more easily compared.
But the dynamic pricing wars extend long past October 31. Amazon.com allegedly makes more than 2.5 million price changes daily, according to analysis from price intelligence firm Profitero.
Still, downsides of dynamic pricing plague companies that misstep, as Uber, a service that allows users to hail a car with an app, can attest. At peak times, low supply and sky-high demand drive up the prices to almost ten times the normal fare; a man in Denver, Colorado was charged a frightening $539 for an 18-minute drive on Halloween night. And when prices yo-yo, consumers lose trust.
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