What to Look for in a Dynamic Pricing Solution
If you’re a retailer or a brand, pricing is one of the linchpins of your overall commercial success. And if you’re considering a dynamic pricing solution, we understand that finding the right one for your organization is of the utmost importance.
The world of dynamic pricing is overwhelming at the start. That’s why we created this guide to help you make the choice for yourself.
So what does your dynamic pricing tool need to for you to achieve real results? Here’s the shortlist of 12 different criteria that you should look for in any solution you consider, regardless of which software vendor you use.
High-quality competitor pricing data
If you don’t have quality competitor pricing data as input, it doesn’t matter how elegant or powerful your dynamic pricing software is. What you feed the machine matters, and, as the saying goes, “garbage in equals garbage out.” Without the right data, your calculated prices won’t be as powerful as they could be. Or worse: the prices could be wrong.
To get the best data, the software should gather competitor prices from two places: comparison shopping engines (CSEs) and directly from competitor websites.
This double-whammy combination ensures you get all prices available on the market for every product, not just the ones your competitors advertise on CSEs like Google Shopping.
This data can appear in two forms.
Most teams don’t have the manpower to keep up with the work required for URL matching, so the company’s limited time and resources get directed (understandably) to the high-runner products that sell frequently and are highly elastic. But in this scenario your long-tail products get lost in the ether, and when nobody monitors the price on these items, your company loses money on them.
The second option is to use the product’s Global Trade Item Number, also known as a GTIN. Here all you need is to provide the software with this unique 14-digit code for every product in your assortment. The software can then scan the market for those codes and match prices based on this factor.
In our experience, a mix of GTINs and URLs is the best way to guarantee quality pricing data.
In this blend, you can input the main URL for your competitor’s website (such as www.competitorname.com), then use GTIN codes to search the website for your products. This means you only have one URL to track, and it’s a URL that is unlikely to break or change.
It’s more expensive to collect this data this way, but it saves your team countless hours of manual labor, especially on comparison shopping engines. By using GTINs, you get a consistent price advice for every product because if a URL breaks, the tool can still locate the product using GTINs.
Scalability happens in two different ways: across markets and stores (breadth), but also within your assortment (depth).
In terms of breadth, look for a tool that allows you to match products and make price updates in different markets. Within Europe for example, you want the opportunity to match products from your Dutch store to products at German or Belgian competitors.
If your store is large enough, you also want a software that local teams can use in different countries. There’s no sense in using a different pricing software for different markets, even if your pricing strategy is determined at a local level.
For depth, scalability again applies to the number of (long-tail) products your company can match and update. We’ve already discussed how GTINs help you reach deeper into your assortment, but other features like automation and data visualizations also help.
Dynamic pricing should save you time, and almost any solution out there will help you carve more hours out of each week. But some vendors go further than others in terms of their automation.
Within dynamic pricing, there are 3 points for automation:
1. Data Collection
The first point for automation is the collection of competitor pricing data. Competitor prices change continuously, and to stay aligned with the market you need the ability to track what’s happening with online pricing.
Many retailers and brands do this process manually. Their pricing teams will scroll the internet for hours, searching for price changes and updating spreadsheets with the information. This manual price check process is not only tedious, but it’s also inefficient and costs pricing teams 10-15 hours per person per week.
Automating this part of the process saves time and improves overall working life for your team. It’s also the foundation for any dynamic pricing tool on the market. As discussed, your tool will use URLs or GTINs to gather this information.
2. Price advice
The price advice is the second point of automation in the dynamic pricing process.
After collecting competitor data, powerful algorithms will combine the market information with your own internal information and commercial strategy. The software will then use that knowledge to calculate a fresh price for every product it analyzes. The software will then deliver this price advice to your team, and your team can then update your listings.
This automation point is crucial because it helps you scale to every product efficiently. Rather than making price adjustments based on a Pricing Manager’s gut feeling, an algorithm determines your prices based on data.
3. Price updates
Most dynamic pricing vendors stop the automation process after the price advice. And while automating up to this point does save time for your team, you will still need to update your prices online manually — a time-consuming (and boring) task.
Automated price updates are the cherry on top of an excellent dynamic pricing solution:
after collecting the data and calculating a new price, software with this functionality will upload those prices to your e-commerce platform. This then changes the prices on your website, comparison shopping engines, and even electronic shelf labels.
This automation step allows your store to stay agile as the frequency of market changes increases. It also gives your team the chance to focus fully on strategy, not the manual tasks necessary to keep up with the market.
Dynamic pricing is a big change for any company, and a large element to successful, widespread adoption is a wholehearted trust in the system.
The platform should never be a black box
The platform should never be a black box, and you should always understand how the algorithm arrived at any given pricing decision.
No matter which vendor you choose, ask the sales representatives about how the software ensures transparency on pricing decisions. There should be a tool within the user interface that shows you every single rule the algorithm followed to determine any price.
It’s a red flag if a company can’t answer questions about transparency. In order for your team to accept dynamic pricing — and embrace it as part of their workday — they need to trust the system and understand what it does. If they don’t trust it, they’ll fight the tool or refuse to use it.
Maximum number of products
Your dynamic pricing solution should let you continuously test new prices for the whole assortment, regardless of how many products you have. You should also be able to set prices to the product level without hassle.
No dynamic pricing vendor will advertise a limit on the number of products you can match. But if you use URLs, there will be an effective limit in your team’s ability to process all the matches.
Once again, GTINs and automation can remove this barrier and make your entire store agile, not just the products you can manually check or update. As mentioned, a GTIN-URL blend makes product data collection easier, and full automation eliminates the limits of your human team.
Re-pricing intelligence is the ability for a dynamic pricing tool to evaluate the market, incorporate that data with your internal information, and create a fair price for every product several times a day. It does this using business rules, which are rules you create that tell the system what to do. Some examples of simple business rules are:
Always price 5% lower than Competitor A
Set my price as the average of Competitors X, Y, and Z
Always be the highest price on the market
The above examples are extremely simple business rules, and while they’ll get you started with dynamic pricing, they don’t account for the constant variance of the market, competitor promotions, or other variables. These rules are solely reactionary, and they let your competitors’ actions determine your product’s price.
To keep your store profitable and agile, you need a dynamic pricing strategy that considers both external and internal stimuli. Otherwise you lose control of the tradeoff between sales (and market competitiveness) and contribution margin optimization. The internal variables you should optimize for include:
- Purchase price
- Stock levels
- Logistical costs
It should also include factors of your commercial strategy that are not influenced by natural changes in the market, such as price perception and brand perception.
One extra-smart way a dynamic pricing system can help take this even further is to engage predictive pricing based on product elasticity and historical market data. If a software knows how a product performs throughout the day (or week) and notes a higher volume of searches and/or purchases at a given moment, it can use that information to alter your prices during that period.
Automated recalculation frequency
Your system should not only respond to internal and external stimuli...it should also respond fast.
Today’s online market moves at a breakneck speed.
Price changes happen several times per day already (Amazon changes the price of the average product once every 10 minutes), and that speed will only increase with time as major global players like Amazon are investing in their pricing technology to make it even more agile.
If you buy a dynamic pricing solution, the fact is you need one that can do multiple daily updates. Even if you don’t plan on changing your price daily now, you’ll want a system with this functionality so you have the possibility if you change your mind.
Find a system that supports automatic updates four or five times per day. This is the fastest pace any vendor can offer you, and it’s more than enough to ensure your prices stay relevant with the market.
Dynamic pricing should be dynamic. And that means it should be easy to change your strategy whenever and however you want.
Search for a solution that makes strategy changes easy for all sections and subsections of your assortment. You should be able to set exemptions on any level, whether that’s the product group, brand, or category. It should also be easy to add or exclude promotions or discounts for specific cross-sections of your assortment.
Your dynamic pricing tool shouldn’t just have a lot of flexibility in strategy setting. It should also be easy to use.
Dynamic pricing is supposed to make your team more agile, but if your team needs to talk to your IT department every time they want to update a pricing rule, they won’t be able to do their job effectively.
Companies who build dynamic pricing solutions in-house often have this problem. Usually a team of developers are tasked with creating a dynamic pricing platform that meets the needs of the company, and the result is a tool that works, but which isn’t designed for user friendliness. The power to change a pricing rule lies with the developers who built the system and understand what goes on “under the hood.” When a Pricing or Category Manager wants to adjust their strategy, they need to ask a developer for help.
This complicated tango drains resources, time, and energy from both teams, and frustrates Pricing Managers, Category Managers, and Developers alike. It’s also wasteful for the teams’ times and talents.
No-code platforms are the answer to this problem. They let the end-user of a software change a strategy without technical support. The user can implement, test, and iterate on new strategies within the tool itself. If they have questions about these changes, the dynamic pricing vendor will have a customer support hotline your Pricing or Marketing Manager can call.
What good is a software if you can’t easily navigate through the portal?
When considering dynamic pricing solutions, the user interface should be an important checkbox to fill. Even the best system in the world won’t perform well if the interface is poorly designed because it will frustrate for your team to use. And if the experience with dynamic pricing is frustrating, adoption will remain low across your teams.
You want a user interface that is easy to navigate, understand, and update. It should also give you the information you’re looking for without being prompted.
Visualizations and reporting
Similar to a great user interface, visualizations and reporting possibilities are crucial for a successful dynamic pricing system.
Your dynamic pricing software should provide users with valuable insights into your assortment and marketplace at a high level.
You can then use those insights to update your pricing strategy to flow with the market. You should then receive further visualizations and reports to show how the market reacted to your changes.
This “loop” helps you test strategies, learn what works, and take your pricing to a more profitable level.
The icing on the cake: customer service and support
We’ve mentioned that dynamic pricing is an organizational shift, and our experience is many companies underestimate how big of a shift it can be. So while features are important (and you no doubt want a platform that can do it all), they don’t matter if you feel like you’re drowning in the tool itself.
The icing on the cake of an excellent dynamic pricing tool is the customer service and support you get with the product. While hunting for a solution, there are a couple of key areas you should seek support in:
You put your pricing on the line with dynamic pricing, and software vendors need to recognize that right from the start. There should be a clear implementation process that walks you through the system setup and helps you feel comfortable with the tool.
Your pricing strategy is ever-evolving, and your software should change with it. Your vendor should have consultants on-call who can help you translate your pricing goals and strategies into pricing rules the tool can use.
After you’ve created strategies, you might want help interpreting the results. An account manager will help you through this, show you some tips and tricks, and let you know if there are new product updates.
The software will become a part of your team’s daily workflow. And if you need help, there should be a support team on hand.
Dynamic pricing might seem scary, but with the right knowledge you can figure out the right vendor for your shop. This guide will give you a solid foundation for evaluating different solutions and finding the one that fits your needs.