As the price of goods and services is directly linked to a company’s profitability, it is essential to understand the pricing dynamics to gain a competitive edge. Whichever pricing strategy you choose, it must have ready acceptance among consumers and businesses. Deviating from the norms is permissible until companies, the industry, and consumers feel that the pricing policy does not hurt them. Many companies introduced dynamic pricing to boost profits rapidly, resulting in consumer resentment. The problem was mainly because of faulty implementation of the dynamic pricing strategy that belied the expectations of consumers and businesses. Maybe, the timing was not right too.
Dynamic Pricing – An Explanation
From the name, you can make out the dynamic pricing definition which means variable pricing of any product or service. Instead of sticking to a fixed price for a product or service, companies prefer to change the pricing and offer different prices for different customer groups for the same product or service. The price-changing modality is market-driven, and retailers can change the price of the product anytime to gain from the changing market. Flexible pricing, also known as real-time pricing, is a direct response of the company to the changing market demands with an eye on maintaining high profitability. It’s a plausible explanation of what is dynamic pricing.
Examples of Dynamic Pricing
Let’s have a look at the way Amazon uses dynamic pricing eCommerce. Across industries, from the airline to e-commerce, numerous dynamic pricing examples exist. The most talked about case study dates back to May 2017 and is about the price of Remodeez, a shoe deodorizer brand. The demand for the item increased significantly due to a BuzzFeed blog recommending the item. It immediately pushed up the sales of the product listed at $9.99. But when buyers flocked to Amazon, they found the price was $15 due to Amazon’s policy of applying a dynamic price to any item. The trend continued whenever Remodeez received a high recommendation that increased the demand for the product. Amazon’s market tracker helped to increase the price at the opportune moment to earn high profits.
Consumer Reaction
While businesses are at liberty to use the market conditions to boost profits, the policy of changing prices suddenly usually caught consumers off-guard. Consumers felt that the technique amounted to unfair trade practices comparable with daylight robbery. Despite the selling platform determining the price, consumers thought that the brand was responsible for the unfair treatment meted out to them.
Brand Reaction
When e-commerce platforms have the right to change prices anytime, it helps them to boost their profits. Brands have nothing to gain from the interim price changes but face the wrath of consumers instead. In the above example, every media coverage was Amazon’s gain.
However, the dynamic pricing did not help the brand in any way. Instead, the company behind the brand lost sales volume.
