Five Reasons for Dynamic Price Optimization

Online shops, gas stations and flight providers are paving the way: They use dynamically intelligent pricing strategies. The methods used acquire a completely new quality thanks to the interplay between continuous environmental analysis and price response. What are the reasons behind the successful rise of dynamic pricing methods? And at the end of the day what advantages do they hold for retailers and end customers?

1 Less effort required when pricing

It is virtually impossible to consistently gather, analyze and evaluate all of the price data for product ranges with several thousand products, as is often the case with online retailers, without an intelligent automation solution. It has always been a challenge for retailers to match the right product with the right price. Retailers can use dynamic pricing tools to overcome this challenge – with very little effort.

2 Avoid disastrous price spirals

Every retailer is naturally interested in the pricing of its competitors. However, rigid, mechanical pricing rules often amount to nothing. Dynamic pricing methods detect, anticipate and prevent potentially disastrous price spirals (up or down), which ultimately offers considerable added value to end customers: Serious price development instead of confusing price distortions.

3 Complex interdependencies are taken into account

Pricing intelligence considers the price factor not in isolation but rather in conjunction with other parameters and environmental factors. The analytical and optimization tasks to be solved are clearly more complex. It is necessary to incorporate a number of objectives (customer loyalty, turnover etc.) as well as constantly changing environmental conditions (availabilities, weather etc.). This complexity can only be managed using intelligent dynamic pricing methods.

4 Enables the simulation of new pricing strategies

Intelligent, IT-supported dynamic pricing and the human capacity to make strategic decisions are not mutually exclusive concepts. On the contrary: It is only through a consistent analysis of price data and environmental conditions that we can gain insight into the cause and effect relationships at the foundation of strategic decisions. That means that ultimately there is an opportunity to proactively design a wide variety of pricing policies, simulate the effects of various strategies and predict their success.

5 Builds the bridge to personalization

Dynamic pricing builds a bridge between personalization and pricing. Actual application scenarios can be designed completely individually – fine tuned to both product and target group. This makes it possible to offer each individual customer an extremely personal and service-oriented shopping experience. Personalized coupons, for example, offer customers price advantages that are actually relevant to that customer. A lactose-intolerant customer, for instance, would be pleased to receive a coupon for soy milk instead of for regular cow’s milk. Or in other words: What good is a coupon for meat to a vegetarian?

Conclusion: Have the courage to forge new paths

Without a doubt, price is one of the most effective turnover and sales levers in retail. When determining the optimum demand function, category managers are regularly faced with a problem: The product range is simply too big and the boundary conditions are too complex to guarantee ideal pricing for all products. Modern pricing tools can find the best possible price in real time while automatically adapting to customer behavior as well as to constantly changing market and competitive situations. At the same time, personalized product recommendations and individual price advantages are elegantly combined. The right product at the perfect time and in the right place needs the right price tag. So, when it comes to pricing, have the courage to trust in intelligent solutions.