Optimizing eCommerce revenue with a dynamic pricing strategy

Gibson Toombs

August 30, 2022

8 min read

Dynamic pricing has played an integral role in sales and marketing strategies for centuries. But with the rise of eCommerce—along with artificial intelligence (AI) and machine learning (ML)—technology, dynamic pricing strategies are becoming increasingly complex, not to mention necessary for success among brands in highly-competitive markets.

Simply put, dynamic pricing involves methodically changing the prices of products and services, based on a variety of factors, including new market trends, supply and demand, historical sales data, inventory, and so on. For modern eCommerce businesses, the key is to establish a foundation of tools, processes, and algorithms that enable automatic pricing updates in support of complex dynamic pricing strategies. When executed successfully, this leads to:

  • More customer engagement
  • Increased conversions and sales
  • Greater customer loyalty
  • A sharper competitive edge

Let’s dive deeper into the what, why, and how of dynamic pricing in eCommerce.

How does dynamic pricing work?

Dynamic pricing starts with collecting and organizing data from various sources. Product information, competitive price points, market trends, customer behavior, and other data gets filtered into a machine learning algorithm, which uses mathematical models to yield optimal prices. These algorithms vary in complexity depending on the size of the business, the types of products being sold, and a wide range of other factors. But the objective is always the same: To deliver the best prices to the right customers at the right time.

Here are some common examples of dynamic pricing algorithms at work:

  • Airlines: Since more people fly during certain times of the year, or days of the week, airplane ticket prices are constantly in flux.
  • Hotels: Like airlines, hotels can get away with charging higher prices during holidays and local events.
  • Ride-sharing services: Apps like Uber and Lyft enjoy surge prices during rush hour, or on stormy days when the roads are more dangerous.
  • Clothing retailers: Brands like Walmart and Target can charge more for rain jackets during the winter or flip flops during the summer, since there’s higher demand for those products at those times.
  • B2B companies: Wholesalers and manufacturers often provide lower prices for larger bulk purchases. They may also have different customer tiers, each with their own assigned prices.  

From an eCommerce perspective, the key is to implement a dynamic pricing algorithm that can identify the smartest price point at any given time, then automatically update product prices across websites, apps, marketplaces, and any other sales channels. This not only boosts revenue, but also reduces the need for manual, time-consuming workflows within a dynamic pricing strategy.

Implementing a dynamic pricing strategy

With the right internal pricing tools and processes, you can optimize buyer experiences and ultimately increase the ROI of your brand’s eCommerce storefronts. While every business is different, a successful dynamic pricing strategy generally involves:

  • Creating customer personas: Not all customers are created equal. Some come to your business with different goals, needs, and expectations than others—and your pricing strategy should reflect that. By understanding your customers’ unique budgetary requirements and how much they’re willing to spend, you can fluctuate prices more effectively during periods of high or low demand.
  • Understanding market trends and competitors: In addition to running a competitive analysis, you can integrate data analytics platforms that provide insight on current cross-industry pricing models to help set your own company’s prices.
  • Fluctuating prices based on demand: Your eCommerce store and other channels should raise or lower prices for certain holidays, seasons, and traditions like Black Friday/ Cyber Monday (BFCM). And to promote higher business productivity and scalability, these updates should be automated via back-end tools.
  • Utilizing coupons and discounts: Offering digital coupons and discounts to customers via emails or pop-ups is a great way to improve sales and conversions. Through continuous testing and data analysis, you can see which offers are the most effective at which times, then optimize your pricing strategy from there.
  • Harnessing dynamic pricing solutions: As your business grows, manually analyzing data from public and private sources and regularly updating prices across channels will quickly become too complex and time consuming. Luckily, you can implement sophisticated AI and ML solutions that automate these processes, saving significant time, money, and effort in the long run. The trick is choosing the right solutions, then integrating them smoothly with your eCommerce platform and other business tools.

When running a dynamic pricing strategy, it’s important to maintain transparency with your customers. If a buyer finds out that they’re having to pay more for your products than others, they may become disgruntled and take their business elsewhere. In general, consumers don’t want to be the target of dynamic pricing strategies unless they’re getting lower prices out of it. Avoid any potential backlash or PR issues by providing clear pricing rules and customer support on your brand’s website.

Team up with Codal to optimize eCommerce revenue for your business

When you’re ready to revamp your online store to include dynamic pricing and other power features and functionality, Codal is here to help lead you through the process. Our award-winning team will get to know your business—from its technological infrastructure, to its customers, partners, competitors, and surrounding market—then plan and execute a strategy aimed at increasing customer engagement, conversions, and sales via cutting-edge tools and data-driven design.

Codal builds, tests, launches, and manages eCommerce experiences for brands across all industries, including retail, finance, healthcare, and food and beverage. In our thirteen+ years of experience, we’ve engineered all kinds of front- and back-end digital solutions, and formed partnerships with leading eCommerce technology providers like Shopify and BigCommerce. Our team has the technical expertise and resources to transform your business so that it’s equipped to compete and grow in the digital era.

Interested in learning more about implementing dynamic pricing strategies and other complex digital solutions for your eCommerce store? Get in touch with Codal today!

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