Dynamic Pricing in Ecommerce



In this day and age there are many unknowns, many of which are unknown. Philosophical posturing aside, one thing that we do know, is that pricing is a component of business where it is essential to succeed, or risk certain doom. The age of Ecommerce has only intensified the importance of pricing, as consumers have more ability to compare prices with ease. This informed consumer may become more fickle than before, willing to purchase alternatives and products in competition where once there may have been undying brand loyalty, but chances are if you’re reading this blog post you’re already well aware of this!



We have written a blog post on the history of dynamic pricing beginning with American Airlines in the 1980s here, and would encourage you to check that out if you would like further information on this domain. In our opinions, the success of ecommerce retailers in recent years can largely be attributed to their adoption of a dynamic pricing strategy. Having the right price at the right time is a competitive advantage afforded only to those who are able to utilise data and technology to make pricing decisions - more on how this technology works here.


Technology-Driven Pricing In Action:


Most people understand and accept that the price of a flight will fluctuate throughout the day, depending on variables such as the number of eyes on that particular route at the time. Many may be unaware how successful retailers have become at this technique too. Below are 3 examples of dynamic pricing success and facilitating technology in very different areas of retail.



How could we talk about data driven dynamic pricing without starting with Amazon? The undisputed ruler of ecommerce, Amazon has made significant waves in the industry with their ability to utilise their vast amounts of data alongside their impressive Artificial Intelligence (A.I) capabilities to make pricing decisions. Amazon reportedly changes prices roughly every 10 minutes which we assume is up there with some of the most frequent price changes around outside of the stock market. While we don’t have data on Amazon’s profit by product group, we can see that revenue for their online stores has grown 15.5% per year since 2014. Assuming they are watching bottom line responsibly (or propping it up via AWS profits?), we could call that sort of revenue growth for one of the world’s largest companies a success, and likely partially attributable to a rock solid pricing approach.



It is logical to think that dynamic pricing is confined to ecommerce businesses only, and at one time this may have been true. As companies like Walmart (who boast impressive revenues both online and in store) have shown, digital signage can pave the way for easy implementation of dynamic pricing in bricks and mortar stores. Walmart appears to have begun trials of this signage technology in 2019 with pricing changes controlled by store management. While Walmart does not advertise that it uses dynamic pricing technology (though it has been strongly suggested by many news sources over the years), it is understood that Jet.com (Acquired by Walmart in 2016) uses a pricing engine to analyse the items in a customer’s cart, adding discounts as more items are added. Now that Walmart has such pricing technology in its arsenal, combined with digital price tags, the retailer is set to leverage dynamic pricing in an increasingly data-driven and digital world.




Similar to Walmart, Best Buy rolled out digital price signage across its American store network in 2019, facilitating a dynamic pricing approach in a bricks and mortar setting. Combining this with its dynamic pricing technology already in place on the ecommerce side of the business, Best Buy is well placed to compete actively in this arena.



The 3 retailers above are the best in their fields, what does this really mean for me?


As a smaller ecommerce player, one could be easily overwhelmed by the technology available to you, and that which is in use by the market leaders. In our experience it is essential to keep the end goal in mind, and ensure that any technology implementation fits in with your business strategy. For example:


Goal: increase revenue by ABC%

Pricing strategy: a mix of skimming and premium pricing


Once the above is clear with the team building or implementing your pricing engine, you are able to move ahead with designing your dynamic pricing approach including the regularity with which you will allow changes to be made, pilot categories, and success metrics. We have written a step-by-step guide of this nature here for anyone in need of further detail. The conclusion is that we’ve seen the best results achieved when a pricing engine is tailored to a business via inclusion of the business specific goals and strategies as mentioned above, as opposed to a generic strategy or rules based approach.




The way forward for pricing technology in ecommerce businesses is clear; adopt a pricing technology that allows you to bring a dynamic layer into your business, without sacrificing your overall pricing strategy.


For information on the Remi AI Price Optimization platform, please feel free to visit this page for further information.



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