From: Pavlos Tsulfaidis
Date: 27.04.2016
By changing prices three times more per product than its competitors, Amazon was the king of pricing and assortment strategies last season. Amazon changed the prices of its most popular toys as much as 4.5 times per day on average, and 3.2 times per day for electrical products. Amazon has used an effective dynamic pricing strategy to determine the extent to which prices adjust in response to market conditions and competitor price adjustments.
If you want to keep up with Amazon, you need to follow the tips below to successfully approach your dynamic pricing strategy:
Considering that competitors and industry developments can affect product prices at any time, it's essential for retailers to incorporate analytics-based rules software that can make price adjustments without requiring a human to take action. Redefining set rules is necessary to optimize specific outcomes.
TIP 1: Strategy rules
Strategy rules are based on observing specific product goals (e.g., maximized conversion, maximized return, inventory clearing) and specific competitors. Some retailers even set strategy rules to respond to price changes for key products in specific stores. For example, it can be useful for specialized stores to understand competitor price changes and install automatic rules for raising, lowering, or holding a price. 90% of the commands that flow into rules software fall under the strategy rule category.
TIP 2: Ladder rules
After strategy rules, ladder rules can also be used to enhance the sales principles in place. Such principles also take effect when buying in bulk and buying generic or private label instead of branded items to save costs. With these principles in mind, laddering rule algorithms enable the permanent assignment of relationships between product lines or categories.
For example, if a pharmacy offers branded pain relievers, it can set a ladder rule that causes the price of the generic to drop proportionally when the price of the branded product is lowered.
TIP 3: Territory rules
Not all products are created equal. Due to differences in the cost of living in cities around the world, product prices need to be adjusted for each area. By implementing territory rules, retailers can set higher or lower prices based on where they sell. This rule can be modified to target larger cities or even apply to specific zip code areas. Many specialized stores and national chains align their prices with their competitors both online and offline. In addition, territory rules can be integrated into a vendor's rewards and loyalty programs, and customers can be offered special deals and promotions based on their location.
While competing with Amazon - the king of dynamic pricing - is challenging for any vendor, focusing on delivering a better shopping
experience leads to significant improvement in overall success. By optimizing strategy and implementing ladder and territory rules,
merchants can continuously adjust their prices to reflect internal and external developments, which greatly improves dynamic pricing
strategy.
Update 11/20/2019
Using the Rule Builder included in Smartstore 4, you can create custom rules based on conditions, such as matching product
prices to respective territories.
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