Wednesday, September 5, 2012

Avoiding the dynamic pricing trap

Great article in the WSJ on the rise of dynamic pricing. (An additional video shilling a new service called Digital Folio also tagged in the reader comments which I thought was interesting.) Love the WSJ's article title as well: "Coming Soon: Toilet Paper Priced Like Airline Tickets " This trend shouldn't surprise anyone. You may have noticed on your recent excursions to Amazon small pricing fluncuations are present on many of their goods. Most of the time, the price changes are not too alarming one way or the other and don't diminish your desire to buy on Amazon. Right?

And what's sad about this online trend in fluctuating prices (and assuming this is occuring primarly online for non-durable, transaction-oriented goods) is that retailers are now reduced to battling over pennies and dollars for buyers--becuase everything else in the transaction is equal. So it's commodity pricing now. And the belief that lowest pricing will win the customer.

Amazon likely has this algorithmic pricing down to science and is utilizing it to boost revenue based on supply and demand and what the competition is offering (sometimes those same competitors are selling the items through their Amazon's site!) In fact, its likely they can gauge it by zip code and historical data pinpointed to that date. And Amazon knows that their customers are loyal enough not to be concerned about pricing flucutations becuase shoppers are confident they are getting a good value on Amazon (even if the price isn't the lowest) and the Value Halo makes Amazon customers trusting. (It will be interesting to see if Amazon rolls this out to it's other properties like Zappos or Wag. Few ever shop on Zappos to get the best deal.)

So if you don't have the Value Halo like Amazon, tread into dynamic pricing at your own risk. Done right, it's seamless and profitable (on share if not margin.) Done poorly, its a PR disaster and will drive customers away--maybe not right away but eventually. Instead, focus on the Value Add. If  you, dear retailer, are not the lowest price, what else can you do better than others (or most?) Is it easy to compare products? easy to choose the best fit for your customers? easy to checkout? do you offer post sale value? Add the value and the price becomes less relevant in the transaction and the future relationship.

And as others get sophisticated enough to do dynamic pricing, will we see the pricing scanner apps like we  have for airline seats in the futre. Except the scanner searches for toaster ovens or cameras.

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