How to Implement a Dynamic Pricing Strategy For Your E-Retail Site

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Santa’s vacation time has finally arrived and retailers are officially closing the books on the holiday shopping season and releasing results on how they fared in their most important quarter of the year. Who came out on top?

Making three times more price changes per item than its competitors, Amazon was the king of pricing and assortment strategies this past holiday season. In fact, Amazon re-priced its popular toys an average of 4.5 times a day, and 3.2 times per day for electronics. Amazon, like many smart retailers, set up an effective dynamic pricing strategy to help dictate how prices will change in response to market conditions and competitors’ adjustments.

If you’re trying to keep up with Amazon, check out the below tips to get your dynamic pricing strategy off the ground:

Given that competitor and industry trends effect prices at any given moment, it is essential for retailers to adopt an analytics-driven rules engine, which allows for price alteration without human intervention. Redefining conditional rules is necessary to optimize for specific results.

TIP 1: Strategy Rules

Strategy rules are based on monitoring specific product goals (e.g. maximize conversion, maximize margin, purge inventory) and specific competitors. Some retailers even set up strategy rules to keep a pulse on price changes for key value items at specific stores. For example, it is useful for specialty retailers to have an understanding of direct competitors’ product pricing fluctuations, and use automatic rules to raise, lower or keep prices the same. 90% of commands programmed into a rules engine fall under the strategy rule category.

TIP 2: Ladder Rules

Following strategy rules, ladder rules can be utilized to better enhance guiding retail principles. Such principles include purchasing items in bulk and purchasing generic or private label products as opposed to brand name products to cut costs. Keeping these principles in mind, ladder rules consist of algorithms to permanently define relationships between products sets or categories.

For example, if a local drug store is selling name brand pain relievers in their medicine aisles, they can implement a ladder rule that would proportionally drop the price of the generic product when the name brand price drops.

TIP 3: Zone Rules

Not all products are created equal. With the cost of living in cities across the globe differing, the prices of products sold in those areas have to adjust accordingly. By implementing zone rules, retailers set higher or lower prices on items based on where the product is sold. This rule can be edited to specifically target larger cities or even more specific zip codes. Many specialty retailers and national chains correlate their prices with those of similar competitors, online and in store. Additionally, zone rules can be translated within retailer’s reward/loyalty programs offering customers pricing and promotions based off of their specific location.

While competing with Amazon – the king of dynamic pricing – is a challenge for any retailer, shifting the focus on delivering a better customer experience will drastically impact overall success. By optimizing the strategy, ladder and zone rules within a rules engine, retailers can continually adjust product prices based on a variety of internal and external trends, furthering enhancing their dynamic pricing strategy.

Which retailer do you think succeeds at dynamic pricing? Sound off in the comment section below.

bl20 IT Mihir Kitt 2628370eMihir Kittur is a Co-founder and Chief Innovation Officer at Ugam. He oversees sales, marketing and innovation and works with leading retailers and brands, delivering insights and analytics solutions to support their category decisions and improve business performance.