Dank Big Data zu besserer Performance
“Dynamic pricing” is not a foreign word in retail, even if it does not always catch the eye of most consumers. Used intelligently, Dynamic Pricing can use Big Data to improve a retailer’s business: profit and revenue are expected to grow.
Dynamic Pricing: What is it?
Constant price fluctuations for gasoline and diesel at petrol stations are probably the most obvious example of dynamic pricing. There were even dynamic prices in the nearest village shop: in the evening the bread became cheaper so that it could still be sold. But above all, dynamic pricing plays a major role for online retailers like Amazon these days. They often change their prices for top sellers several times a day. The same model of a television set costs 400€ in the morning and 900€ in the evening. Behind such pricing lies the fact that dynamic – i.e. flexible prices adapted to the market situation – serve to control the sale of products and services.
The reason for the price fluctuations is that online merchants collect millions of data records about their potential customers. By means of Big Data-Analyses, the evaluation of huge amounts of data, the price is optimized for the customers according to a certain algorithm. Together with current market events, the data forms a basis for automatically adjusting prices to supply and demand. The analyses enable retailers on the fly to recognize the consumer’s willingness to spend. To some extent, customer data is enriched and matched with external data sources (for example surfing behavior). It checks how often the customer has clicked on the product or when he is looking for the product.
Expensive bookings via the app
Consumers are also confronted with dynamic prices for hotel bookings. For example, if you want to book a cheap hotel quickly via the app booking.com, you won’t find what you’re looking for directly on your smartphone in most cases and you will be lured into the top results with expensive offers. This is because scrolling on the smartphone is time-consuming. According to the “Verbraucherzentrale NRW”, the mobile terminal also plays an important role in determining which price is displayed to the potential customer.The head office found that customers who bought via a tablet often had to pay more than customers who purchased the product via PC.
In addition, customers who come across online providers via Google search are regarded as new customers and are often attracted by lower prices. Customers who click directly on the website are expected to be more willing to pay for the same good.
The reason for the need for optimal pricing is mainly due to the fact that competitive pressure in online trading is increasing. There are countless suppliers of electronic goods on the Web and some retailers have the same articles or models in their assortments – this creates enormous price pressure among suppliers.
Instructions for online retailers: try it out and stay alert
It is important for online merchants to keep a permanent eye on the search and buying behavior of potential customers. Only the retailer who generates a positive perception of the price to the consumer remains successful on the market. However, as soon as the end consumers notice the price fluctuations of dynamic pricing, they feel treated unfairly. The result is that customers no longer attribute reliability to their trusted retailer, turn away from his online shop and shop elsewhere.
Many studies and expert opinions show that online vendors should at least consider using dynamic pricing solutions to optimize prices based on Big Data and Predictive Analytics. Vendors can use dynamic pricing not only to maximize profits, but also to build long-term customer loyalty. If a provider attracts customers with clever discount campaigns, it is highly probable that he will be able to welcome new customers again and protect existing customers from emigration. It is important to pay enough attention to feedback systems in order to recognize influences on sales, loyalty or conversion rate and to align strategies accordingly. The use of Dynamic Pricing in combination with Churn Prediction has proven to be a powerful combination. While Churn Prediction determines when to trade, Dynamic Pricing defines the action.
In the second part of our Dynamic Pricing series you can read what added value artificial intelligence provides in pricing