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Dynamic Pricing: Curse or Blessing for E-commerce?

07. Dec 2017 | Updated on 05. November 2020 | 05:00 | Increasing Conversion Rate

Dynamic pricing has become a well-known buzzword in e-commerce, but it tends to have negative connotations. Therefore, in this blog article we want to go intowhat exactly dynamic pricing is, what advantages and disadvantages there are, how dynamic pricing can be used and what role personalisation plays in this. So finally it becomes clear what significance dynamic pricing has for e-commerce. Have fun reading!

 

This Contents await you in this blog article:

How dynamic pricing is defined

Advantages and disadvantages of dynamic pricing

Example of dynamic pricing at TUI in emails
Setup in the email dispatch system
Procedure after sending the email
Dynamic prices in combination with personalisation

Personalisation in the context of dynamic pricing
Calculation of dynamic prices
Playout of dynamic prices

Conclusion: Dynamic pricing can optimise the customer experience

 

How dynamic pricing is defined

Dynamic pricing (also called dynamic price adjustment or dynamic price management) defines prices that are automatically changed within a fairly short period of time due to market conditions and pricing strategies (in contrast to static prices, which change only rarely). For example, prices in e-commerce are dynamically adjusted when a certain offer has expired or a certain purchase volume has been reached in B2B.

 

Advantages and disadvantages of dynamic pricing

A major advantage of dynamic pricing is in any case in the customer experience justified. If, for example, an online shopper is automatically shown the sale price for a product in real time on the watch list, this has a positive effect on the customer experience. The same applies to a B2B buyer, for example. When he has reached a certain purchase volume, he is pleased when his purchase price automatically decreases. As long as dynamic prices are not unfair to the customer and are comprehensible, they have a positive influence, even an added value for customers and thus represent an advantage in e-commerce.

The disadvantage of dynamic pricing arises from the definition of possible influencing factors. For example, if a different price is charged for MacBook users than for PC users or a price difference is made between mobile and desktop users, this can lead to very negative sentiment among customers, as this dynamic pricing is considered unfair by customers. This price change usually has a negative impact on the customer and thus also on the company’s brand. Precisely because of this, dynamic pricing has acquired a rather negative image.

Whether dynamic pricing becomes an advantage or a disadvantage depends on the influencing factors that are used for dynamic pricing.

What experiences have you had with dynamic pricing? Feel free to tell us about it!

 

Example of dynamic pricing at TUI in emails

In the travel industry, it is common for prices to change constantly. Be it flights, hotels or rental cars. This usually depends on the occupancy rate. If the occupancy rate is low, discounts are granted and the prices go down. If the occupancy rate rises again, the price changes upwards. Thus, the price can adjust every minute. Therefore, it is important that the price is kept up to date on the website as well as in the sent emails so that there are no discrepancies. Particularly in the case of sent emails, there can be several hours or even days between sending and opening and this can lead to irritations when the website is opened. TUI therefore uses dynamic pricing in email marketing.

Screenshot of the TUI newsletter with dynamic price adjustment.
Newsletter from TUI with dynamic price adjustment

Setup in the email dispatch system

The TUI newsletter consists of several offers for a wide variety of trips. A placeholder is created in the email template for each offer, and the price is inserted in its place later. As soon as the recipient opens the newsletter, the current prices are displayed in a few milliseconds. TUI calculates the prices and transfers them to a knowledge base. The dynamic price display is then carried out in real time via a personalisation software.

The graphic shows the knowledge base into which the calculated prices are entered via the product catalogue.
The calculated prices are entered into the knowledge base via the product catalogue

Procedure after sending the email

If the email recipient now clicks on one of the travel offers, the current price is transmitted from the knowledge base in real time. Since both the website and the email delivery system are connected to the knowledge base, the prices in the newsletter correspond to those on the website. The special thing about this is that the prices are not frozen so that they correspond to the status of the first opening each time. With each opening of the newsletter, they are played out anew via the knowledge base and thus always kept up to date. If an offer is fully booked in the meantime, the text “already booked” appears in the email. In this case, it would also be possible to use a fallback strategy that displays alternatives. In this way, dynamic prices have an efficient and recipient-friendly effect in the travel industry, so that TUI can delight its customers with constantly updated offers.

 

Dynamic prices in combination with personalisation

Furthermore, it would be possible to combine dynamic price display with personalisation. By displaying relevant recommendations and thus sending a personalised email with current prices. This would have the advantage that customers would receive individual offers for their favourite travel destinations and the price would be displayed on a daily basis when they open the email. A customer who has an affinity for Italy would receive offers with dynamic prices for Italy. This can additionally increase the click rate and thus the traffic in the online shop.

 

Personalisation in the context of dynamic pricing

Personalisation is about addressing customers individually and creating a positive customer experience. The display of dynamic prices can support this if they are calculated to the customer’s advantage.

 

Calculation of dynamic prices

Dynamic pricing uses an algorithm that calculates the appropriate price for the recipient based on a database. Artificial intelligence methods can be used here (machine learning), which constantly develop themselves further. In addition, company-specific rules can also influence the prices. Every company therefore has the possibility to influence dynamic pricing either negatively or positively. What should be noted, however, is that personalisation always has the overriding goal of optimising the customer experience and creating positive shopping experiences along the customer journey. Unfair pricing and personalisation therefore do not go hand in hand. If you want to learn more about calculating dynamic prices, you can take a look at the article by Stephan Lamprecht in e-tailment magazine.

 

Playout of dynamic prices

The personalisation software is responsible for playing out the dynamic prices, e.g. in combination with relevant product recommendations depending on the customer or in the B2B area depending on the purchase quantity. However, the calculation of the dynamic prices depends on the online shop itself; the personalisation software only accesses the prices that flow into the knowledge base about the product catalogue and plays them out in connection with personalised measures in the online shop.

 

Conclusion: Dynamic pricing can optimise the customer experience

Used correctly, dynamic pricing can be a blessing. Your customers won’t get any unpleasant surprises, but an excellent service. However, if you want to increase your profit at all costs, this can quickly have a negative impact on your image and your long-term success. Overall, it can be said that especially in industries with strong price fluctuations, such as the travel industry, there is potential in dynamic pricing, which should be used to create a better customer experience in e-commerce and increase KPIs at the same time.

More information about personalisation in e-commerce >>

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Janina Küpferle

Janina blogs with passion. This is also reflected in her articles on the topics of epoq and online shop optimisation. She previously gained her experience as a Junior Consultant & Partner Manager at epoq.

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