What Is Dynamic Pricing?

I often encounter this embarrassing situation in my life: I went to a usual clothing store, and was surprised to find that the suit I just bought for 155 yuan is on sale, and the current price is only 79.99 yuan. Someone's experience may be even worse than that. I just bought a laptop with the latest configuration 6 weeks ago and was smugly proud of it. As a result, I found it outdated when I looked on the Internet. What's more, the price was 1200 yuan cheaper.

Dynamic pricing

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Dynamic pricing refers to pricing products based on market demand for products and customer purchasing power.

Chinese name: Dynamic pricing

Foreign name: Dynamic pricing

There is nothing more pitiful to consumers than to spend money unjustly. Depressing experiences are accumulated over time, and more and more times, some consumers will learn to be good and become smart. They changed their consumption habits and gradually adapted to new tactics of merchants' dynamic pricing. Dynamic pricing refers to business strategies that frequently adjust prices as channels, products, customers, and time change.

In light of this situation, savvy consumers carefully weigh and then make a judgment. For example, if the sweater is not in a hurry to wear, is it bought before the winter to press the bottom of the box? Or is it more cost effective to wait 2 months before the season change? Obviously, consumers will choose to keep more money in their pockets.

So, are companies as smart as consumers? The development of the Internet has promoted the transformation of merchant pricing models. In addition, with the increasingly fierce market competition and the segmentation of customer groups, these require companies to adopt dynamic pricing strategies. However, a recent Accenture survey on online pricing shows that merchants can

lower

The dynamic marketing strategy uses the powerful advantages given by the Internet to quickly and frequently implement price adjustments based on changes in supply and inventory levels, providing customers with different products, various promotional offers, multiple delivery methods, and differentiated product pricing. . Under this strategy, online merchants can clean up excess inventory in a timely manner without constantly sacrificing price and potential revenue. For example, in the Amazon online bookstore, whenever a repeat customer logs in to a website, the bookstore will give personalized purchase suggestions based on his spending history. The advantage of this is that it not only clears the inventory backlog, but also meets the personal interests of customers, and also increases sales revenue.

In the actual application process, the enterprise may consider implementing a certain strategy alone or combining strategies as appropriate. We believe that the stronger the psychological differences in customer prices, the more uncertain the market demand, the greater the value of these strategies and their role.

For example, if a company finds that customer demand is stable and completely predictable, and that there is no psychological difference in prices between customers, then the value of adopting a dynamic pricing strategy is the lowest. In this case, the most effective is a dynamic sales strategy, which shifts customer demand to other goods and services, alleviates the lack of supply elasticity, and improves the level of gross profit margin.

If customers have different values for the same product or service, but their demand patterns are relatively fixed, at this time, companies must comprehensively use a variety of dynamic pricing strategies, and take targeted measures based on customers' different product or service preferences and price psychology Appropriate pricing strategies, such as dynamic sales strategies, market segmentation and limited allocation strategies, auctions and peak load pricing strategies. Conversely, if customers have different values for the same product or service and their demand patterns are uncertain, then in addition to the above strategies, it is also feasible to adopt a clear pricing strategy.

Finally, if the demand is uncertain, but all customers have similar value recognition for the product or service, then dynamic sales, market segmentation and limited rationing may be the best choice, so as to stabilize the supply cost and realize the product. And maximizing service prices.

Enterprises should make good use of dynamic pricing strategies. After all, the pricing decision process requires management to invest a lot of valuable time and energy. The pricing strategy should be in parallel with the corporate brand strategy.

For example, Buy website is a low-priced electronic retailer that sells handheld products in large quantities. Although the price is adjusted frequently, computer products are an exception. Dell, on the other hand, sells computer products in large numbers and frequently adjusts prices. Compared with Dell computers, handheld products are only in a secondary position, so prices rarely change. It can be seen that regardless of Dell or Buy, it is only those core products that implement close monitoring and frequent price adjustments.

If customers compare prices for bargains, then price concessions for one type of product can just drive another type of product to achieve a higher gross margin. Take two examples of online bookstores, Amazon and Barnesandnoble. For best-selling novels, the prices of both are maintained at comparable price levels. For professional textbooks and other books, the price gap between the two is very different.

Companies attempting to use price as a competitive advantage must first have the ability to "cross the river by feeling the stones". In other words, it is necessary to predict the changes in future demand patterns, and to figure out the price tolerance of customers for different products and services. Fortunately, the development of network technology has provided us with a variety of low-cost solutions. Tracking customer behavior and insight into customer psychology is no longer a distant luxury. In the retail industry, using online comparison tools, we may implement automatic monitoring of competitors' pricing strategies.

Secondly, in order to implement a dynamic pricing strategy, companies must also practice their internal skills, including establishing performance benchmarks and gaining insight into the inventory levels of key components. In addition, they need to determine the right time to adopt a clearing pricing strategy or to implement dynamic sales or market segmentation and limited rationing strategies when market supply is inflexible. To establish a performance benchmark, it is necessary to integrate the front-end and back-end systems, establish a more effective data warehouse and cross-enterprise process integration capabilities.

Third, many companies are relatively new to dynamic pricing, but face constant changes in market segments. Therefore, it is increasingly important to build the necessary dynamic pricing capabilities. This requires companies to start recruiting professionals and ensure that senior management gives due attention to the following two aspects: the use of new pricing models and the re-evaluation of specific customer values. For the latter consideration, there may be strong resistance from sales staff. The implementation of dynamic pricing strategy also requires companies to carefully consider and weigh these two factors: the selection of appropriate dynamic pricing products and the frequency of price adjustments.

Realize that dynamic pricing is not a panacea. Because customers are always reluctant to feel deceived. Companies must be cautious, and the same product price ensures channel consistency. You can also write more about the differences and open up the product service.

Better balance

It is also important to realize that dynamic pricing strategies are not everything. Its effectiveness must be built on a timely response and adjustment of the pricing system. That is to say, on the basis of operating according to established pricing rules, human judgment is indispensable. Companies must have a keen sense of ability to gain insight into what customers say and do, that is, whether they react to dynamic pricing strategies. Without this perception, companies should be honest and adopt stable pricing strategies. In the process of formulating a pricing strategy, it is wise to experiment with specific customer groups, select the best pricing model, and then adjust the model accordingly.

With the emergence of online sales channels, dynamic pricing strategies have become increasingly important. It creates new ways to maximize the return on customer and corporate assets. At the same time, it also points out a new direction for enterprises to establish future competitive advantages, and cultivates a competitive ability that is difficult for enterprises to imitate for competitors.

Another point is that the implementation of dynamic pricing strategies, the realization of full enterprise integration, and the establishment of processes and business capabilities that are difficult to imitate all require significant investment from senior management. Investment dynamic pricing strategies may also have economies of scale. Effective pricing also requires companies to master various historical data and accumulate long-term customer insight experience. For those new entrants, this is harder than going to the sky, greatly reducing the imitability of dynamic pricing capabilities.

Dynamic pricing is more in line with the needs of today's digital age, as it finds a better balance between buyers and merchants: it is objective and punctual. The relationship between merchants and customers has also changed. This is no longer a forum of words, but rather a fair negotiation and contest between opponents. It creates a wider range of price options for buyers and sellers. So don't miss the slightest opportunity to make money.

By Ajit Kabir

(Associate Partner and Senior Fellow, Accenture Institute for Strategic Change)

Weipu Agrewa

(Co-founder and Chief Operating Officer, MCA Solutions)

Compilation: He Ting

(Accenture Consulting)

"Listed Companies" (No. 11 of 2002)