As the final quarter of 2023 kicks off, retailers and ecommerce decision-makers are gearing up for a holiday season worthy of a touchdown celebration dance. They're strategizing, running plays, putting in the hustle and hoping to come out on top. Looking to tackle this Q4 and score big? Dynamic pricing might be the game-changing strategy you’ve been holding out for.
Dynamic pricing refers to the strategy of adjusting product prices in response to customer behavior insights. The most effective solutions utilize artificial intelligence (AI) and machine learning (ML) to inform their models. Implementing and supporting this might seem complicated and costly, but it doesn't have to be. In fact, you don’t need a team of data scientists or engineers to reap the rewards of AI-based pricing. Spresso.AI’s dynamic pricing solution, Price Optimization, was built by retail operators in direct response to their pricing challenges as retailers. The battle-tested solution seamlessly integrates into the backend of a retailers’ website, unlocking dynamic pricing for the masses!
When exploring dynamic pricing solutions it is important to look for cross-functional tools that are able to work in tandem with pay-per-click shopping ads as these are an integral part of many businesses’ Q4 revenue strategy. Since Price Optimization was built by retailers, of course, it includes this functionality out of the box.
Okay, (extra) point taken, we’ll refrain from future football references as we explore three key ways that dynamic pricing can be used to drive Q4 success and beyond.
1. Simultaneously supercharge sales and profitability
With dynamic pricing, you have the ability to execute different pricing strategies simultaneously by optimizing for different business goals. This optimization can be as granular as desired. Some retailers tailor strategies down to the SKU level, while others optimize at a category level.
Both goal and price point range are established at a campaign level and then products are added to a campaign, inheriting the campaign details. A retailer can set up a campaign with the goal of maximizing margin while maintaining conversion for one category and a sell-through conversion-focused campaign for a different category - and run both at the same time. The dynamic pricing solution will optimize traffic based on the campaign’s goal. With Price Optimization, customers are seeing an average of 18%+ profitability gains across optimized SKUs.
2. Dynamic pricing means you’re always hedged
The second advantage of dynamic pricing is the ability to capitalize on market fluctuations in real time. In addition to the campaign goal, the seller sets a minimum and maximum price to test in the Spresso.AI console and the dynamic pricing solution begins to optimize, serving different price points within the range to consumers.
While the solution quickly hones in on the top-performing price point and dynamically allocates web traffic accordingly, there is a small percentage of traffic that remains on other price points, continuously experimenting. If the market suddenly shifts and a particular price point is no longer the most performant, the traffic dynamically shifts to the new best-performing price. This ensures you are always hedged - no matter how quickly the markets move.
Dynamic pricing protects sellers from losing a sale or margin to competitors based on price alone. With dynamic pricing, competitive forces can be detected and reacted to before they have a chance to adversely affect the seller’s pricing strategy.
Best illustrated with an example: Imagine you sell cashmere sweaters, luxurious and fairly common, and your catalog price is $100 a sweater. You’ve been dynamically testing in a range of $85-135 per sweater and the winning price is $105. Now, imagine Taylor Swift steps out wearing a cashmere sweater that looks just like the sweaters you sell. Consumers flock to purchase cashmere sweaters, but your unprepared competitors sell out. Suddenly consumer demand dictates you can charge more for that sweater, the $135 price point starts to convert and the traffic dynamically shifts so consumers see the higher price point and you’re able to claim those dollars back to your bottom line.
3. Pricing built around your most powerful asset - Your data
Dynamic pricing solutions, like Price Optimization, use first-party data in the form of consumer behavior on your website to optimize pricing. Use of first-party data has a plethora of benefits, including freedom from scraping tools and cookies (which are being phased out). Instead, pricing is tailored to your customers’ behavior and preferences how your competitors are pricing. Your brand is unique as are your customers so it makes sense that your pricing strategy should center around them.
Optimize inventory management and clearance (Honorable mention)
This is listed as an honorable mention solely because inventory management and clearance sell-through tend to be prioritized in late Q4. It is a benefit of dynamic pricing worth highlighting.
Dynamic pricing can be a game-changer when it comes to optimizing inventory and driving sales of slow-moving or excess products while minimizing the impact on margins. By strategically adjusting price ranges based on demand, you can incentivize customers to purchase items that need to be cleared out before the end of the year, without having to resort to big clearance sales. After all, you want to optimize your candy cane inventory before it becomes deadstock on December 26th.
For a more in-depth exploration of how to use dynamic pricing to optimize seasonal sell through check out our recent story.
Drive Q4 success with dynamic pricing
As we near the end of the year, it's crucial for DTC brands, retailers, and ecommerce decision-makers to explore innovative strategies that can drive Q4 success. Dynamic pricing emerges as a powerful tool that can be utilized in various ways to optimize sales, improve margin, manage inventory, stay competitive and sell through seasonal inventory. By implementing dynamic pricing you can ensure that this Q4 is your most successful one yet.