Dynamic Pricing: Benefits and How You Can Implement It
In recent years, customers have become extremely sensitive to pricing. As a result, many businesses have also become increasingly price-conscious. According to the 2021 Consumer Optimism Outlook, the percentage of consumers who consider themselves price-conscious while shopping jumped from 23% in 2020 to 31%.
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These statistics suggest that price-consciousness is now a must for larger businesses that want to remain competitive. To capture customer interest and stand out from competitors, businesses should use dynamic pricing to influence customer purchase decisions and increase revenue. As of 2021, 21% of European and North American companies already use dynamic pricing. An additional 15% plan to use it in the future.
Unlike traditional static pricing — which always stays the same — dynamic pricing changes from time to time. These price fluctuations can help retailers capture customer interest based on factors such as region, competitor prices, and consumer demand. For instance, retailers may decide to set prices lower at night because fewer people are online at that time.
Read on to learn more about dynamic pricing and how you can use it to understand consumer choices better. You’ll also learn how web scraping can power dynamic pricing.
What Is Dynamic Pricing?
Dynamic pricing is a pricing strategy that uses variable prices. It aims to sell the same product or service to different groups of people at different prices at different times of the day.
Unlike seasonal pricing, which shows different prices depending on the season, dynamic pricing moves extremely fast, with stores changing their prices several times a day.
Dynamic pricing typically comes in two flavors:
Dynamic Pricing Based on Time
Most eCommerce stores use a dynamic pricing model based on time. This practice means the prices of their products fluctuate based on time.
Amazon’s pricing model, which changes every 10 minutes, is a good example. The company bases its ever-fluctuating pricing model on a complex algorithm that processes large amounts of data, including consumer habits, market trends, competitor pricing, and more. After processing all this information, the algorithm will output a price that allows Amazon to sell products with the highest profit margin.
Dynamic Pricing Based on Groups
Some stores also use a dynamic pricing strategy based on groups. In this scenario, businesses use statistics and machine-learning algorithms to offer different prices to different consumer groups.
For example, if statistics and machine learning predict that people above 50 are more willing to pay $2,000 for a laptop than people aged 18 to 25, these stores will show laptops in that price range to users above 50. Similarly, if stats and algorithms predict that users in San Jose are more likely to pay $40 for a hoodie than users in Los Angeles, these stores will show hoodies in the $40 price range to users in San Jose.
How Dynamic Pricing Can Help Your Business
Dynamic pricing can give your business many benefits, including:
Observing Consumer Behavior
Enterprises often use dynamic pricing to observe consumer behavior. With the help of algorithms and analytics tools, they determine what customers want at each stage of the customer journey. Dynamic pricing models also help them to answer the following questions:
- Which customers are willing to pay higher for quick delivery or high-quality goods?
- How do certain groups of customers react to changing prices?
- When do customers react to changing prices?
Competitor Awareness
Many businesses use dynamic pricing to monitor and analyze competitors’ prices and adjust their own prices in response. Their research can help them answer these questions:
- What of my competitors’ products are the most popular during particular times? Which products are the least popular?
- When do my competitors change their prices the most? What factors are these price changes reflecting?
- When are products unavailable or sold out?
Adjust Prices According to Demand
Most industries set prices based on the existing supply and demand structure. If the demand is low, they lower their prices. If the demand is high, they raise their prices.
Dynamic pricing can help you understand how supply and demand cycles work in your industry. You will get a better picture of when demand is high and when demand is low. If you don’t have a solid grasp of how these cycles work, you may miss out on numerous opportunities, particularly if demand for your products is highly elastic.
Increase Revenue
Finally, you can significantly increase sales and revenue by adopting dynamic pricing.
As an increasing number of enterprises adopt dynamic pricing, consumers have become increasingly sensitive to pricing. Research by Pricewaterhouse Coopers (PWC) has revealed that 55% of consumers use Amazon to evaluate and compare prices, and nearly 40% begin their pricing research there. There are also myriads of price comparison tools that consumers can use to compare prices on thousands of websites for specific services and products.
This behavior means that businesses must use powerful tools like dynamic pricing to catch up to their competitors’ prices. Otherwise, customers gravitate towards providers that offer more competitive pricing.
How Dynamic Pricing Works
Integrating dynamic pricing into your business isn’t as hard as it seems. Just follow these steps to get started:
1) Ask yourself whether you really need dynamic pricing.
Although dynamic pricing offers many benefits, it’s not the best pricing model for every business. Dynamic pricing is typically used by big companies and retailers who have a lot of competitors. So if you’re a small business, you probably shouldn’t adopt a dynamic pricing model.
You should also avoid adopting a dynamic pricing model if your services and products are better-suited for stable prices. These products include popular items that can be found through other retailers and sites in the same format, such as mass-produced notebooks and kitchen supplies. Since customers can always compare prices, they can easily buy the product at the best price or delay buying until the price drops.
2) Define your dynamic pricing strategy.
After you’ve determined that you need dynamic pricing, define your pricing strategy. You can do this by observing your competitors’ pricing strategy, consumer demographics, and internet trends.
Solidify your strategy by thinking about your business goals. You can start by asking yourself the following:
- Are you trying to outsell a competitor and create a new sales record?
- Are you trying to expand your market?
- Are you trying to sell products and services that very few companies are selling? If that’s the case, how will that impact your pricing strategy? How would your strategy change if your products were mass-produced?
- How do these goals help increase your revenue?
3) Get the right dynamic pricing tools.
You need to get the right dynamic pricing software to help you track and implement price changes in real-time.
Most stores use web scraping bots to gather data from competitors to adjust prices. Web scraping bots, also known as web scrapers, are programs that collect data from websites and save it in a usable format like Excel sheets. Stores use scrapers to monitor their competitors’ prices 24/7 and see when their prices rise and drop.
You will also need to hire qualified personnel to conduct web scraping. This support will help you ensure that you’re getting the most out of your web scrapers. Without expert interpretation, the data from web scraping can be confusing at best, useless at worst.
4) Set the rules.
Once you’ve assembled a team of web scraping experts, it’s time to establish some rules about dynamic pricing that the team can follow while running the web scraping software. Remember to keep things ethical and reasonable — if you inflate prices too much during certain times of the day, people will notice, and they may think you’re being unfair.
5) Test and observe.
Test your dynamic pricing strategy and see if there’s anything you want to change about your pricing strategy, dynamic pricing rules, and scraping methods. Pay particular attention to how the prices are impacted during the day and see how revenue and customer retention are affected.
Web Scraping for Dynamic Pricing
Picking a web scraper can be difficult, particularly if you’ve never done it before. Although there are many options out there, not every scraper is created equal. For instance, many free or budget-friendly scrapers lack security and don’t work well on certain browsers. Many scrapers also come with a complex user interface, a confusing pricing structure and require deep knowledge of coding.
That’s why you should consider getting Scraping Robot. Sleek, user-friendly, and powerful, Scraping Robot has a simple pricing structure that works for everyone. We don’t have subscription fees or pricey hidden fees — we just have one flat rate per scrape. Depending on the tier you choose, this flat rate can be as low as $0.00045 per scrape!
If you’ve never tried scraping before and just want to see what it’s like, you don’t have anything to get started. By signing up for a Scraping Robot account, you automatically receive 5,000 free scrapes per month with all features included. We also add new modules every month.
Interested? Sign up today and get 5,000 free scrapes per month.
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