Why Dynamic Pricing is Less Risky Than You Think

Author: Grace Baldwin Grace Baldwin in
7 min read

Dynamic pricing does come with some risk. 

 

But that risk isn’t actually all that big. In fact, compared to the rewards that come with dynamic pricing, the risks seem comparatively small. And with proper preparation, safety features, and support, you can easily limit (and in some cases eliminate) the amount of risk you take. 

 

Curious? Keep reading to learn why dynamic pricing is much less risky than you think. 

 

What are the risks associated with dynamic pricing?

In our experience, customers are most afraid of a couple of key things before they start their dynamic pricing journey. 

 

The first major fear is the chance of a race to the bottom, which involves the vicious cycle of competitors lowering prices until the market crashes out at a price point of close to 0. This fast descent into profit loss looms over the minds of many executives and directors when they first confront dynamic pricing. 

 

This is a risk, of course, though it’s one that’s largely controlled by proper safety checks within your dynamic pricing system. No matter which dynamic pricing software you use, you should make sure the algorithm has limits that are easy to understand and set up. You should then install those limits on every product, and properly test these limits before launching. 

 

When done correctly, these limits help you avoid a race to the bottom with dynamic pricing

 

Secondly, there is the risk of handing your entire pricing system over to a fully automated software, especially if you don’t fully understand how the software works. 

 

Many people feel that automation in general is a sort of “black box” where you don’t know what’s happening behind the scenes. In some ways it’s sort of like a computer. The vast majority of people use their computer for a very specific purpose that’s relevant to their job, emailing, surfing the internet, gaming, etc. Most of us don’t understand the complete inner workings of the computer, and likely don’t know how to get the full potential out of the machine. 

 

This isn’t a bad thing, of course, it’s just the reality. We trust the computer to do these things for us, and also know that if something goes wrong, the stakes are relatively low. If you don’t understand the back end of an electronic word processor works, it won’t cost you your job.

 

Dynamic pricing is a little different in that if you don’t understand it, the potential to lose your job or tank your profits is higher. The potential for disaster is greater and affects more than just a single person. 

 

Again, automation does present a risk, but proper safety checks and setup neutralize the threat.One easy way that we at Omnia help you understand what’s happening behind the tool is with our “Show Me Why” button, which details the logic behind every pricing decision. This makes sure you can explain every action that the tool took to arrive at a price.

 

Risk of change

Ultimately, the biggest risk by far with dynamic pricing is founded in a fear of the unknown. 

 

Most companies know that dynamic pricing will transform their operations across multiple departments, and this change is understandably scary. What happens when you ask your employees to change their way of working completely? How long will it take for your organization to get used to dynamic pricing software? What if the return on the investment takes longer than expected?

 

These fears are completely valid, and like all fears they tend to be the loudest voices in our heads. But with proper planning, preparation, guidance, and tools, dynamic pricing can catapult your company into a more profitable future. 

 

The rewards of dynamic pricing

Dynamic pricing software is more than just a software. It’s an opportunity to move your company squarely into the modern era of e-commerce with a clearer roadmap for where you want to go.

 

Here’s the thing: dynamic pricing is a tool that you control. You have full jurisdiction over how it works, and control the risks within it. And you can’t use the tool properly if you don’t fully understand what your commercial objective is, how that commercial objective translates into a pricing strategy, and how to execute that pricing strategy effectively within your chosen tool. If you don’t take these steps before buying into dynamic pricing software, you won’t get the full value of the tool.

 

That’s why our most successful customers - the ones who thrive in our system - use the implementation of dynamic pricing to evaluate their company goals and build a better plan for the future. 

 

When they do this, the first thing most see is more time. On average, our customers save about 10 hours each week within the first quarter of using Omnia. As each customer grows comfortable with the automation, they hand over more of the robotic, tedious tasks to our software.

 

And while this saved time is an excellent benefit, it isn’t really the time that matters. It’s the ability to use that time to focus on building a better strategy that moves your company towards your goals, whatever they may be. 

 

For customers who are the first in their category to implement a dynamic pricing solution there is also a first mover advantage. The companies who are the most successful with technological innovation are the ones who move the fastest and make the largest investments in the sphere. 

 

These companies are not only able to get a grip on the technology before the competition, but they can also adopt future innovations much more easily because their systems are primed for it. 

 

The reality is that dynamic pricing is on most retail company’s radar. But that doesn’t mean you can’t reap the benefits of acting quickly.

 

How to have more reward and less risk

Moving from dynamic pricing may seem risky, but the rewards far outweigh the chance of failure. And the risks of dynamic pricing can be largely minimized with proper planning and preparation

 

So, how do you get more reward with less risk? We’ve rounded up our top 6 tips. 

 

First and foremost, you should be realistic when it comes to the adoption of dynamic pricing. Most retailers are beginning to adopt the practice, so the longer you wait, the further you’ll fall behind your competition. 

 

This brings us to our second tip: get started early, and look beyond your pricing department as the only one that can improve with software. When planning for dynamic pricing software you should make sure that all relevant stakeholders are at the table for all relevant discussions. This should include individuals from your purchasing, marketing, operations, and pricing departments.

 

Third, you should go back to the basics. With Omnia, there are five key steps to successfully implement dynamic pricing, and the first three (which are arguably the most important), don’t involve the software at all. These steps involve revising your commercial objective, then defining a pricing strategy and pricing methods based on that objective. Only after you have a strategy and methods in place can you start translating these into business rules in your chosen software. 

 

To define your commercial objective and pricing strategy though, it pays to have outside help. That’s why our fourth tip is to hire a consultant to coach you through the process and give you clear direction. If you’re curious who Omnia trusts to help you through these steps, you can take a look at our partners page

 

The fifth tip is to start small. You don’t need to automate your entire store from the start. Start instead with one product or category, learn how the tool works, and eventually you will be able to add in more complex strategies. 

 

Finally, the sixth tip is to find the right tool for your business needs. Omnia is one of these tools, of course, and we’ve designed our Dynamic Pricing module to lower risk and elevate reward. You can also add in our marketing modules to get a complete overview of your entire online presence. 

 

But what really makes Omnia special is our Customer Success approach, which gives you a whole team dedicated to making your dynamic pricing journey a success. From the start you’ll go through a complete onboarding process that teaches you how to use the tool and work with consultants to set up the proper pricing strategies. After you learn how to use the tool, a Customer Success Manager will conduct quarterly review sessions to show you how you can get even more value out of the software. And of course, if you have any small questions in between, customer support is available. 

 

Final thoughts

To have a big reward, you need to take some risk. And while there is a risk with dynamic pricing when it is implemented incorrectly, the proper safety measures (and the right people to show you how they work) can all but eliminate that risk. When you have the right preparation and process and a team to help you set up, dynamic pricing software is actually a low-risk, high-reward endeavor.

 

If you’re interested in seeing these safety measures for yourself, sign up for a free two-week trial of Omnia today and see how Omnia works with you to make dynamic pricing a success. Click the button below to get started.

 

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