Dynamic pricing is an increasingly popular way for B2B eCommerce businesses to increase sales, improve customer experience, and free up your sales team. But what is dynamic pricing in eCommerce? How does it work? And how can it help you grow your business? In this guide, we’ll cover all that plus more: examples of successful uses of dynamic pricing in eCommerce, actionable advice on where to start using dynamic pricing yourself, and a comparison of dynamic pricing vs. other standard strategies.
How dynamic pricing works
Dynamic pricing is a strategy for setting product prices based on real-time data so that you can charge different customers different amounts. You may have heard of dynamic pricing in eCommerce before, but the concept is pretty simple: When customers view your price, they see your lowest possible price.
When they add something to their cart, this triggers an algorithm that checks their payment information and account history against other factors like inventory levels or competitor activity to determine if they should pay more or less than what was displayed initially.
Whether it’s using algorithmic pricing strategies or just some basic A/B testing to figure out what works best for each individual customer type is up to you.
Why use dynamic pricing?
Dynamic pricing can help you get the most out of your sales team. When they know that they’re selling a product at its actual market value, they’ll be able to focus on what matters: building relationships with customers, managing their accounts, and closing deals.
Dynamic pricing helps you capture more value from your products. If one of your offerings is under-priced relative to its peers, it may generate fewer sales than it should. Dynamic pricing enables you to price each product correctly so that everyone knows they’re getting the best deal for their dollar spent.
Dynamic pricing helps meet customer needs by maximizing profitability per sale while ensuring inventory turns at a steady rate within reasonable bounds for optimal performance in the marketplace given current economic conditions (i.e., don’t sell too much during boom years or too little during bust years).
When customers feel like they got exactly what they needed when making purchases without having been misled about price tags—and all because retailers were willing enough not only through using technology but also through communicating openly about why these decisions had been made—they will be more likely return again and again over time as well as recommend others do likewise.
Free your sales team to spend more time with the right customers.
The answer is simple: Dynamic pricing frees your sales team to spend more time with the right customers.
The right customers are the most likely to buy, so you want them to spend as much time with your company as possible. The wrong customers take up valuable time that could be spent nurturing the right ones or even just getting some stuff done around the office.
The idea of free time might sound like something we all have a lot of these days. Still, if you’re a salesperson in any capacity, chances are you aren’t exactly living large on vacation days or leisurely weekends lately (if ever).
And even if you do have lots of free time on your hands, keep in mind that this isn’t about making sure everyone gets their fill of shuteye or Netflix binges—it’s about spending less time dealing with people who won’t buy anything from you anyway and focusing on those who will actually bring value back into your company through more significant investments.
Adjust prices in response to market forces
Dynamic pricing is a tool that lets you respond to market forces in real-time, or even before they happen. Dynamic pricing can help you increase the volume of sales and maximize profit. For example:
- If the price of oil goes up, this will affect the cost of transportation. You may need to raise prices on your products that require shipping to account for higher fuel costs. Dynamic pricing makes it easy for you to make adjustments like these so that customers can still afford your product while covering their own costs.
- If there’s a big sporting event (like the Super Bowl), then demand may increase because everyone wants to get their hands on tickets or merchandise related to it right away. To capitalize on this increased demand, you could implement dynamic pricing for certain products when demand is high–such as offering discounts if people buy now rather than later–and then turn off dynamic pricing again once things die down.
Personalize the customer experience and increase customer satisfaction.
Personalize the customer experience and increase customer satisfaction. Dynamic pricing allows you to tailor your prices to fit the needs of each individual customer, which can help drive loyalty and repeat business. It also increases the perceived value of your products by providing a sense of exclusivity, urgency, or weight, which can inspire customers to make faster buying decisions.
Dynamic pricing is especially effective for high-ticket items because it allows you to create a sense of urgency among shoppers who may be reluctant to make such large purchases without assurance that they’re getting a good deal on their purchase.
In addition, personalized pricing gives shoppers more confidence in their purchase decision since it shows them that they’ve found an offer explicitly customized for them—and this helps build trust between buyers and sellers online.
Increase sales.
When sales are down, it can feel like the whole world is ending. But what if you took a step back and looked at the situation differently?
What if you saw your low sales as an opportunity to invest in growth?
By investing in scaling up your business, you’re able to increase the size of your customer base, which allows you to sell more products and services. When sales are high enough, this increases profits, enabling you to reinvest those funds into new products or hire employees who can take on additional responsibilities—or both.
Examples of successful uses of dynamic pricing in eCommerce
A successful example of dynamic pricing in B2B eCommerce is airlines’ use of dynamic pricing models. For a long time, airlines had used the same model for their ticket prices depending on when the trip was booked and where it was going.
If you wanted to fly from New York to Los Angeles on a Tuesday afternoon, your ticket would cost more than if you flew simultaneously on Saturday or Sunday night. Dynamic pricing, in this case, helped airlines increase revenue because they could offer cheaper flights during off-peak times and charge more during peak times when there were fewer seats available on planes anyway.
Dynamic pricing vs. other pricing strategies
Dynamic pricing is a subset of price optimization, which itself is a subset of price elasticity. It is also a subset of price bundling and, in some cases, price discrimination.
Dynamic pricing includes using the following tools:
- Variable pricing rules based on customer segments or events (e.g., day/time)
- Automated machine learning algorithms to predict future demand based on historical data
Where do I start?
Before you can launch your dynamic pricing strategy, you should consider a few things. First, start with a clear understanding of your customers and their needs. Who are they? What do they want? How much do they want it? If you don’t understand your target audience enough to answer these questions, now is the time to dig deeper into user research or customer interviews.
You’ll also need an understanding of your business model – what does your company do? How does it make money? What resources does it have at its disposal?
And finally, define your pricing strategy: How will customers perceive themselves as being treated differently by different prices (or bundles of products)? This step is crucial because if users feel like they’re being taken advantage of when buying from one retailer over another—even though both are charging precisely the same amount for their products—they’ll be turned off from buying anything from that retailer again.
Dynamic pricing is powerful and worth using, but it’s more effective when you know what you’re doing, so here’s a guide for that.
Dynamic pricing is a powerful tool, but it’s more effective when you know what you’re doing.
You may be familiar with dynamic pricing if you’ve booked a flight or hotel room online.
The cost of your flight or hotel room changes as travel dates and supply and demand fluctuate, allowing the marketplace to adjust prices accordingly. This results in the most efficient outcome: travelers get the best deal possible while hotels and airlines don’t lose out on potential sales because they set their prices too high.
The same logic applies to B2B eCommerce companies; if their customers can negotiate based on their needs and budgets, then these businesses need dynamic pricing strategies that allow them to stay competitive.
Final thought
Dynamic pricing is an essential part of any business strategy. It lets you respond to market forces, personalize your customer experience and increase sales—without spending time on manual price adjustments. But it’s not always easy to implement, especially if you’ve never done it. That’s why we put together this post for eCommerce businesses that want to make their products more attractive than their competitors.
