Dynamic Pricing is a strategy for any business owner who is in the competition of e-market which provides flexibility of the prices. This strategy tailors the prices of goods or services for better sales rate. An effective dynamic pricing can help any seller on e-market to understand the needs of customer and provide a well-tailored price tag for them. Customization of prices can help the business owners to sell more or better in certain amount of time. It helps to understand supply and demand in the economy and shapes the sales accordingly.
However, dynamic pricing can be understood as an evil strategy from the perspective of customers if it done in a wrong way. Consumers can see these changes as advantageous act of the seller and it can diminish the trust towards them. Even though it seems like a good strategy for sales from the perspective of manufacturer or seller, consumers can see it differently. If dynamic pricing strategy is going for too long, it can affect the business in a bad way. Diminishing the risk of backlash from the potential or actual consumers is possible by some ways which we will talk about it in a minute. But first, we should see why it is needed.
Dynamic Pricing or Price Discrimination?
Even though dynamic pricing is about understanding the needs of the market and work according to supply and demand, it can create a price discrimination between people. Price discrimination is an illegal act that can create different prices for different people according to their race, class or gender. Discrimination in any price tag is frowned upon in law. However, there are many lawsuits that are happening for this subject; and in such cases, courts are finding price discrimination as difficult to prove in competitive online markets.
Why Dynamic Pricing Can Be Seen As Bad?
There are two different types of dynamic pricing strategies that businesses can apply.
First of them is about dynamic pricing which is shaped by the people. In this strategy, companies can utilize machine learning advanced algorithms to determine who is willing to pay more. With such technology, sellers can set a different price for every targeted consumer. With every difference in demography, location or any other classificatory item, they can promote different prices. However, with such an act, the difference between dynamic pricing and price discrimination goes grey. Many lawsuits regarding price discrimination are based upon the utilization of such techniques.
The second type of dynamic pricing is determined by the time. To give an example for this, we can talk about the sales or discounts of any product or services before a certain event. Valentine’s Day chocolate discounts at 15th of February, last minute sales just right before a football match or a concert, and so on… And of course, it can be exactly opposite of it. The last ticket of an airplane can be more expensive than the others, because there is a demand and everybody is aware of the situation. In this type of dynamic pricing, consumers can see the differences between the price tags as much as the first type of dynamic pricing; however, they do not see it as a discrimination against their sex, gender, race or class. They only see it as a price change to maximize revenues of that certain event.
Second type of dynamic pricing, which is about providing price changes based on timing of certain events can be seen as better option for businesses as well as the consumers.
What should we do to for a good dynamic pricing without discrimination?
- Price Differentiation Tactics. Providing different prices for different products can be really important. You can provide a different purchasing experience for different people by using different price tags. With such a way, you can provide the purchasing experience more than the actual product. Combining two different products to be a set for a special event; and creating a different size of the product for different price can be the differentiation tactics.
- Time Differentiation. You can differentiate your prices according to a certain event or time for better sales. Selling products or services in different price points by differentiation of the time can be seen as profiting, not like discriminating against others.
At the end of the day, making consumers question your tactics for selling rates is not a great option for the future of business. Creating a better relationship between potential or actual customers and your company lays upon this understanding of dynamic pricing. Making it sure that dynamic pricing is not a price discrimination can be achieved by utilization of such strategy for the right time.
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