1. März 2016

The future price is dynamic

Stranded cart – the future belongs to flexible prices. Photo: Holger Porthmann/Creative Commons

Searching for the most favorable products leads Swiss consumers often over the borders and increasingly into the Internet. The Swiss retail trade has to face the competitive pressure of the international price comparison. Remedy is created by dynamic pricing, which is being discussed equally buzzing among online traders as well as among consumers.

The price is a key factor for the success of online retailers. In particular in the travel and event industry customers are used to the fact that the offer depends on the demand. The president and CEO of the Association of the Swiss Mail Order Patrick Kessler has no object to these dynamics. Although he books his flights online only, he does not consider how much anyone else paid on the plane: «These kind of thoughts would make me crazy, so I leave them.» Walter Oberli, partner of Carpathia, consulting company for e-commerce, disagrees. He speaks of a bad feeling when the person right next to him pays less for the same service. «From a sales point of view dynamic pricing may be fascinating to optimize margins. However as a consumer, I feel utterly betrayed.» In his experience an online merchant must prevent any negative associations with its brand. As this can quickly spread on social media and have a negative effect on the entire reputation of a brand.

In fact, the price regulation in the Internet is a major challenge. Using market analysis and data records, online traders know it all about there customers: when they buy, what and how much they paid. But how can an e-tailer use this information? And how can he use his data intelligently for price adjustments? «The right price at the right time – thus a retailer will be able to set its pricing strategy sustainably,» explains Tal Weber, co-founder of Quicklizard, a software for dynamic optimization of pricing strategies. The profound software provides an extensive analysis. It observes one hundred percent of the product range. In addition, it monitors and analyzes various online offerings, collects data and calculates depending on demand and objectives the best price. The idea for this program origins from mobile services, where the vast offers, providers and roaming charges aggravated the customer to make the best choice. Quicklizard offers the possibility of perceiving the market and its dynamics in real time. The trader is able to respond dynamically.

The customer in the center

For the 250 members of the Association for Mail Order in Switzerland dynamic pricing does (yet) not matter. According to Patrick Kessler, Swiss retailers are far from the mechanisms of price dynamics, such as prevail on Amazon or eBay. The scope for action of prices in Switzerland lies in the availability of goods. But the members of the retail trade lack currently not on goods, which is why other impulsion must be created to increase revenue. «In that case it makes no sense to adjust the price every two minutes towards the customers,» he says. The loyalty of quality-conscious Swiss customers could be rather increased by other benefits, such as additional services.

Online merchants use the software widely. Some see it as a data provider for prices in real time, others as part of their distribution-resource-planning system. In either case the advantage of dynamic pricing is the competitor monitoring. On the other hand, there is a great danger of a wrong strategy, if a trader does not precisely knows his own costs and adjusts prices not profoundly.

Transparency is the alpha and omega

In addition to a positive brand communication Walter Oberli advises to set the price for all customers equally or based on specific discounts. «If you offer specific prices for all for example on the weekends, this strategy is much more fair.»

The trend goes in the direction of making the prices dependent on more then one factor. Flims-Laax ski region calculates its e-ticket prices since 2012 depending on weather, snow conditions or the capacity of the ski area. A transparent communication promotes customer acceptance and is essential to the success of this pricing policy.

However, should an e-tailer offer a different price in the webshop than in the store? The omni-channel purchase experience bases on the fact that the price remains the same. «But is this the right way?» asks Tal Weber. In the end the total costs at the POS are much higher than the once of a webshop and the maintenance of a warehouse. As a result, the price could differ.

The increasingly rapid dynamics that affect the e-business need tools to cope. Dynamic pricing is now applied profitably in different segments. For the future consultants at Quicklizard see potential in the price management of marketplaces.