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Dynamic Pricing: When Should Retailers Bother? | Forbes

Before I get started on answering the question about whether retailers should bother with dynamic pricing, let’s first define what it really is. Dynamic pricing is the act of changing a price multiple times throughout the day or week. There is some expectation that the frequency of price changes is unusually high relative to how the product is normally priced. It’s one thing to expect stock prices to change throughout the day. It’s another to see it relative to cereal on a grocery store shelf. A dynamic price change is typically visible to all shoppers, no matter who they are.

Here are two examples of dynamic pricing. On Black Friday, Amazon changes its prices of highly competitive items multiple times per day, and the pattern of those price changes sometimes matches the doorbuster pricing of store-based retailers, where between 8am-10am ET, for example, the price is 25% off, and then rises to only 10% off after 10 am. A more sophisticated example: consumers buy more salads when it’s over 80 degrees outside. A retailer or restaurant could easily capitalize on the trend by dynamic pricing (or generating offers for) salads once the temperature hits that point, as Walmart does through advertising on its digital signage.

Dynamic pricing is often confused with personalized prices, where retailers create special offers targeted to specific customers. Retailers would love for those offers to be one-to-one, where they are creating offers specific to you, based on your personal shopping tendencies, but they’re just not there yet. And frankly, there’s probably enough overlap in behavior among consumers that individual offers will roll up to groupings of customers anyway.

Dynamic pricing can create a lot of challenges about policy. What happens if the price changes from when you put it in the online cart to when you start processing the transaction? If you’re a store-based retailer, how do you manage fluctuating prices online compared to static prices at the shelf? What happens if you agree to price match, but then discover that the competitive price increased before the shopper made it to the checkout? Or that your own online store offers a lower price than the physical store?

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Dynamic Pricing: When Should Retailers Bother?.