Creating a dynamic pricing strategy for your online store

‍One of the most important aspects when developing the strategy for an eCommerce site is setting the prices of products. Competition is increasing all the time and this means that it's necessary to conduct an in-depth study of prices and establish multiple tactics for dealing with a range of situations. This is exactly what dynamic pricing strategies consist of. Here we set out how to establish a dynamic pricing strategy for your online store

What are dynamic prices?

A strategy based on dynamic prices consists of establishing a price that fluctuates depending on how various parameters, set by the sellers themselves, evolve. In this way, prices reflect the changes that occur in the supply and demand for a product in real time.  Apart from the demand, other factors may include the actions taken by the competition and the company's own internal decisions.

Dynamic pricing strategy for an online store

More and more companies are gearing their business model towards the customer. In this way, brands are able to identify their needs and therefore establish strategies that reflect them. There are different types of dynamic pricing strategy enabling us to adapt ourselves to the experience of consumers:

Segmented prices

A segmented pricing strategy aims to encompass the largest possible share of the market. To this end, various differentiated prices need to be established bearing in mind the value of the product.

By means of such segmentation, different prices can be offered to different customers taking into account, among other factors, their purchasing power.

Maximum prices

A maximum price strategy enables companies to take advantage of fluctuations in demand, in other words to take advantage of the possible variations that arise in the need to acquire a certain product. Within this variation, companies can increase prices when the demand is high or for example when competitors do not have large volumes of stock available.

This strategy tends to be applied at very specific times such as national holidays or for particular events, given that consumers are disposed to acquire the product. 

Time-based pricing 

Time-based pricing reflects factors such as the exact time of day and the duration of a product in the market. This strategy tends to be deployed in online shopping for those products that need to be sold particularly quickly.

To be able to put this type of strategy into effect it will be necessary to analyse, for example, the times at which there is least shopping activity. It also tends to be used when a new product is launched, in other words, the price of the previous version of the preceding product is reduced.

Penetration pricing

It's also worth mentioning the strategy of penetration pricing, which tends to be used when a new product is being introduced into the market. To incentivise and promote acceptance of the product, a price lower than the prevailing market price is fixed to persuade consumers and attract their attention towards the product.

Changing conditions

Finally it's worth mentioning the most advisable strategy to use amid changing conditions. Thus, when market conditions are changeable it's advisable to maximise profits and to this end prices should be reduced when sales start to fall so that when sales levels recover it's possible to gradually restore the normal price of the product. 

The benefits of dynamic pricing

Having covered the various types of strategy that can be implemented it's important also to mention the benefits that are obtained from deploying some of the tactics summarised above:

Flexibility

The first benefit to be highlighted is the flexibility that this type of strategy offers in terms of fixing a price and the sales of the product. Dynamic pricing favours the value of the brand because a range of prices can be established using a base price as a foundation, modifying this at specific times.

Control

Another of the most important benefits is that companies deploying this type of strategy will have greater control over the prices and strategies they conduct, because this will enable them to ascertain the pricing trends of the various products available in the market in real time as well as ascertaining consumers' purchasing intentions. This enables companies to establish the most appropriate pricing and thereby maximise income.

Saving

The final benefit worth mentioning is the economic saving that these strategies represent. This is due to the fact that dynamic pricing is based on product performance in real time and is therefore significantly easier.