We have been increasingly asked by the retailers that we work with about what Dynamic Pricing really is and how it can be effectively executed without impacting customer loyalty. To best answer these questions, we partnered with EKN Research to produce insight around Dynamic Pricing best practices and we recently shared the results of this study in a webinar – Dynamic Pricing: Separating Fact from Fiction. The event was moderated by Mike Troy, Editor-in-Chief of Retail Leader, and featured Revionics Chief Marketing and Strategy Officer Cheryl Sullivan and Sahir Anand, Managing Vice President of Research and Principal Analyst at EKN Research.
Judging by the sheer volume of attendance (240+ registrants) it became very clear to us that the topic of dynamic pricing remains top of mind for retailers today. And the research demonstrates why it is so critical for them to get their pricing and promotions right…they are losing a LOT of money. On average, lack of optimal pricing and promotions results in a 4% and 3.4% loss in sales respectively.
Omnichannel is the new normal yesterday
For retailers, keeping pace with shoppers is challenging and will continue to be so, but keeping pace is NOT optional – it’s essential for retailers’ survival and business success. According to Sahir, omnichannel is so yesterday. The focus has shifted to anticipating what consumers need and expect in terms of their buying experience. In his opinion, this concept of predictive commerce is where retail is headed next.
Retailers need to be thinking about how they can create a unique experience in terms of predictive pricing. What pricing does a consumer really anticipate?
More than half of retailers consider themselves to be behind Amazon in terms of their pricing and promotions analytics. Amazon is not ahead of the game because they are the cheapest; they do not offer the lowest price every time. They are often priced higher in many categories. What separates Amazon from the pack is their ability to harness artificial intelligence (AI) and machine learning to determine optimal pricing and promotions.
What is dynamic pricing?
Dynamic pricing is enabling high-frequency pricing that is automated and runs unattended within user-defined guardrails that enable exception-based management of any price recommendation that might fall outside of these boundaries. When a price falls outside of the defined guardrails, it prompts human intervention to review the recommendation to decide whether to accept or reject it. Dynamic pricing does NOT equate to changing prices on all items several times a day. So what is Dynamic Pricing?
It’s important to note that dynamic pricing is not just knee-jerk price matching that creates a race to the bottom and causes unnecessary margin erosion.
Dynamic pricing science takes into account a myriad of factors including holidays, seasonality, variations of timing (e.g., day of the week, time of the month). It can identify a retailer’s true competitors and dynamically capture their prices, really understand their customers, and have a full picture of the impact of the total basket — such as how price changes impact certain items, which can have a positive or negative impact on other products.
It’s also critical that dynamic pricing is able to predict outcomes with different scenarios. For example, Revionics’ solutions leverage advanced science to allow the retailer to keep up with shoppers’ preferences and decide what pricing will deliver a win-win outcome, resulting in optimal margins, profits and customer loyalty.
Dynamic competitive pricing enables retailers to:
- Identify competitors and items that cause large sales shifts.
- React quickly to relevant changes
- Compete constantly against your biggest challengers
- Win customers and loyalty by always being priced right
And guess what? Shoppers are okay with dynamic pricing! According to a recent research study we commissioned with Forrester, 78% of shoppers are comfortable with the use of data science to determine prices as long as they receive a fair price for the product they are purchasing. This is indeed a win-win for both the shopper and retailer as the retailer is generating a fair price and they can still remain extremely competitive on price where it is important to their customers.
Is dynamic pricing hype or reality?
According to EKN Research, Dynamic Pricing is one of the top five investment areas for retailers. In fact, Revionics has retail customers around the globe that are turning to dynamic pricing. A leading Russian online retailer, OZON.ru., is dynamically pricing more than 7,000,000 products, of which some 20% is online grocery. It’s not restricted to online retailers either. We have customers dynamically changing prices in their stores every night with the adoption of Electronics Shelf Labels (ESLs).
It’s clear dynamic pricing is not a temporary fad, but the new retail norm being adopted by leading retailers to remain relevant and agile amidst today’s fiercely competitive environment.
The EKN Research study shows that retailers are continuing to become more and more responsive to shopper’s hyper-evolving pricing and shopping preferences and they are making strides in having more frequent price changes. By leveraging today’s dynamic pricing technology, retailers can remove the hurdles that are preventing them from going at the speed necessary in today’s dynamic environment and across their broad assortments.
Technology is changing retail faster than anyone can project. Take advantage of opportunities to know your customers, be personal and provide value and experience.
Contact Revionics to learn how our science-based pricing solutions are helping our customers to increase sales, expand margins, execute profitable promotions, and achieve 8-18x ROI.
To view the on-demand webinar – Dynamic Pricing: Separating Fact from Fiction, click here.