Dynamic Pricing is a powerful tool for businesses looking to optimise their pricing strategy. It involves the use of data-driven insights to adjust prices in real time, maximising profitability and market share. Its main essence is to step up pricing with timely adjustments taking care of the slightest changes in demand or other factors that affect pricing and purchase.
However, how do you employ dynamic pricing in your price management ecosystem? In this blog, we will explore the four maturity stages of dynamic pricing. Each stage gradually adds in more features that help you manage pricing more effortlessly, and ultimately enhance your price strategy. Get ready to set a sustainable pricing system and take your business to the next level.
Watch Previous Webinar: Principles of Dynamic Pricing
4 Maturity Stages of Dynamic Pricing
To get started with Dynamic pricing, you need to start with the existing tools you use for pricing. Once you implement the logic, you can slowly use the reports for deeper and quicker analysis. Gradually, you can implement price elasticity to fine-tune your price suggestions further for more accurate results. This helps you gain a higher maturity in your pricing management.
Stage 1: Automate Your Excel and Price Logic
The Starting Point: The journey of adopting dynamic pricing begins by automating your existing pricing logic, typically managed in Excel Sheets. This automation can be integrated with your ERP and eCommerce systems as well.
What are the benefits of automating Excel and pricing logic?
Automating pricing processes allows you more time to strategise, think and fine-tune your pricing on a higher level. When you set the logic in your ERP system or Excel, you let the software or machine conduct those repetitive tasks for you.
Thereby, it frees time and energy so you can use your expertise and judgment for next-level pricing decisions. Using Excel Sheets alone poses multiple challenges. But, integrating automation logic helps you ease the inaccuracies and make a streamlined pricing process. Here are other benefits of such pricing automation:
- Time Efficiency: Automating updates simplifies the process, freeing up time for more strategic tasks. You just have to set the pricing logic and the tool can take actions accordingly.
- Better Decision Making: With more time, you can focus on improving pricing strategies to gain a competitive edge. As said above, a smooth and automated pricing process frees up time for deeper ideation among your pricing team to strengthen the pricing logic and avoid leaving money on the table.
- Cost-Effective Pricing: A smart automation implemented in your pricing tools, ensures that products are not sold below cost price. Setting limitations to price adjustments keeps your new prices to not crossing a certain limit and not exceeding your cost prices in cases of competitive pricing logic.
- Widened Expertise: It also reduces dependency on a few pricing experts, democratising the pricing process across your organization.
- Continuous Improvement: Automation facilitates progression to more advanced pricing stages.
Let’s look at the characteristics of entering the first maturity stage of dynamic pricing.
Characteristics of the First Maturity Stage of Dynamic Pricing
To understand the first stage of pricing maturity with dynamic pricing, let’s have a closer look at its characteristics. This will also help us understand how it helps with the above-mentioned benefits.
- A pricing management software system executes the pricing logic without errors ensuring uniformity. Thereby, leaving no space for inconsistencies and repeated reviews and checks.
- Price logic is condensed into easily manageable formulas. So, the price engine does the calculations and suggests the ideal price at any given time.
Impact of the First Maturity Stage of Dynamic Pricing on Your Organisation
- Facilitates frequent price updates, ranging from quarterly to daily.
With dynamic pricing logic in your software, you unlock frequent price updates that help attract customers on any given day or time of the day depending on the demand. Now, these price changes can happen daily given your industry and product portfolio. It can also take place quarterly according to the market demand and scenario.
- Document your current Excel-based pricing logic, including strategies for different product/customer segments.
- Develop an XML feed integrating product costs, information, and customer data.
Stage 2: Level Up Your Reporting & Utilize Insights
In this stage, you can leverage the power of insights and reporting systems to clear low-hanging fruits and gauge areas that need improvement. This keeps your pricing process in check allowing you to continuously improve.
Here’s how you can get started with using reporting for accurate pricing:
- Use SYMSON’s reporting tool for clarity in your pricing process.
This helps you find loopholes, and learn and tweak your process to make it more robust. SYMSON’s expert reporting tool identifies patterns and trends according to data. This Module is a fundamental type of analytics that is used to assess profitability, market dynamics, sales patterns, and customer behaviour.
- Use specialised reporting tools like PowerBI or Tableau.
Power BI and Tableau are two crucial Business Intelligence tools that help in the collection, integration, analysis, and presentation of business data. Moreover, these technologies help you facilitate data analysis, data manipulation, and data visualisation to make sense of business data and draw meaningful insights.
- Employ AI tools like ChatGPT for enhanced data interpretation and decision-making.
You can also leverage Chat GPT to interpret data. However, AI reporting tools dedicated and trained to accurately interpret and visualise data are way ahead.
Stage 3: Improve Shelf Price Listing
With more advanced strategies, you can enhance your shelf price listing, both physical and digital. Let’s have a look at the strategies you can take to improve it.
Here are the steps to enhance shelf price listing:
Strategic segmentation of customers help you position your products accordingly and make them more findable for customers.
- Evaluate share of wallet per customer
The total amount a customer regularly spends on a specific brand instead of buying from competitors is the share of wallet per customer. In order to increase the amount, companies launch different products and services that attracts people to purchase for various events and circumstances in life.
- Sales channel preferences
Undertanding the sales channel preference helps understand their type of business as well. Whether it is an EDI (Electronic Data Interchange) customer where they can digitally place product orders from a supplier; is it a tender offer for various competing suppliers, or an online customer.
- Customer loyalty level
How much revenue can a business expect from a particular customer throughout the relationship, signifies the level of Customer Lifetime Value, shortly known as, CLV or CLTV. There are other ways to measure or simply understand customer loyalty level like whether they advocate your products or services to their acquaintances, or whether they come back to purchase your products repeatedly.
To enhance your shelf price listing, you also need to segment your products strategically. Let’s look at what factors you need to consider:
- Key Value Items (KVI)
Identifying your Key Value Items (KVI) and strategically pricing them to attract customers to your store or e-store. Pricing them smartly can help your e-commerce business or retail to stay competitive. Due to lucrative prices, more people will come to your store.
The idea is to appeal to your customers and bring them to your website or store. Customer may have plans to buy other items so you can increase your sales volume using this strategy. This is also very crucial for increasing profitabbility.
- Brand significance
The brand name matter for customers, be it resellers and businesses or end customers.
- Product Lifecycle
It’s imperative to consider the product lifecycle as different stages have different pricing sensitivities. Understanding this will allow you to set optimal prices that bring customers and also save your profit margins.
- Commodity Status
Another factors is to segment your products into commodity or non-commodity products. As the strategy for these two categories will differ due to their nature. It will also help implement smart pricing startegies seamlessly.
You can leverage data on market competition to further fine-tune your pricing strategy. SYMSON’s competitive pricing solution helps build a pricing strategy that reflects on your business, benchmark against prices of competition and act dynamically on price changes.
There are multiple ways to track competitors' prices and analyse their pricing approach to reprice your products accordingly. But this may take time and accuracy for thorough analysis. Here are 6 ways you can track your competitors' prices.
Download Whitepaper: The Ultimate Guide to the Top 10 Smart Pricing Solutions
Combine existing pricing strategies with new, innovative approaches. You can do this in a smart pricing software to increase the accuracy of optimal pricing. As the tool considers more relevant factors and data, you get more precise suggestions.
Dynamic Pricing with Elasticity
You can also introduce price elasticity considerations where you can adapt prices based on demand fluctuations. Elasticity-based pricing helps you not only price your sensitive products attentively but also increase your prices for inelastic products to ensure healthy profit margins. An AI-based pricing software simulates future scenarios and makes accurate predictions. Here’s how a price elasticity algorithm works to conduct recommendations.
Stage 4: Integrate Price Drivers with Sensitivity Algorithms
In the modern time, pricing is driven by multiple factors for which businesses are already optimising. However, there are still other factors that influence price sensitivity of products. This is where pricing expertise steps in. It’s imperative to identify the price drivers like brand value, product lifecycle or specific factors like basket size (as for e-commerce).
- Utilise Algorithms that Consider Price Sensitivity
Advanced AI-powered pricing tools leverage proven economic model, seasonal trends, regional/country-based market scenario and optimises pricing decisions. A smart price sensitivity algorithm considers multiple aspects incorporating macroeconomic data, competition, brand position and other macro and micro aspects to generate accurate price recommendations.
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!