It’s time to price dynamically

Posted by Paul Milner on Jun 20, 2017 6:00:00 AM

In the era of Big Data dynamic pricing is now a reality.

However, there a couple of barriers in the way. The first is concerns about what consumers think about the practice, and, second, there’s the question of how to physically make a high number of price changes in-store – daily and even hourly. I’ll address both here.

Consumer perceptions

Electronic Shelf Label changing

Dynamic pricing gets a lot of a press. And although research into consumer attitudes is hard to come by, reports that online retailers change prices based on what devices shoppers are using, or, where they live, haven’t painted a positive picture. Indeed, in the online channel there’s the potential to use Big Data to tailor pricing by individual – and that could necessitate a privacy debate.

But in-store we’re talking about pricing by macro trends and generic sales data which is far less controversial, and in my opinion dynamic pricing is just a normal pricing strategy – on steroids. As shoppers we’re used to flash sales or big events such as Black Friday – all dynamic pricing does is use sales data in real-time to inform and increase the cadence of price changes. Dynamic pricing can be used to:

  • Reduce waste: Eighty-eight million tonnes of food is thrown away in the EU and a third of the food in the US. This in mind, the ability to price more dynamically – and better graduate prices in the lead up to food going out of date – will help reduce waste and protect margins.
  • Encourage footfall: This is hard for me to imagine (being English), but let’s say that your country is on a march through the World Cup, you could offer flash sales in-store to the first 100 people that buy certain items – e.g. TVs, champagne or football kits.
  • React to conditions: This weekend was good weather and if you’re a DIY retailer you can more easily change prices and launch promos on weather-related items – such as outdoor furniture, barbecues or paddling pools.
  • Achieve everyday low pricing: Pricing dynamically means that it’s easier to react to competitors’ offers – this is especially important for grocery retailers when you consider that ‘best value’ and ‘lowest prices’ are the first and third most important factors in choosing a grocer.
  • Price by location: Some retailers do this already, but if you operate stores in an affluent part of town – where rents are much higher – prices could be changed geographically to adjust to these overheads.

It’s no good having the data insight to change prices dynamically if there’s not enough staff available to physically change labels (or, labels are printed and shipped to stores on a weekly basis). Indeed, 46.7% of retailers currently update their prices once a week, whereas 53.4% want to be making changes daily or in real time. But Electronic Shelf Labels (ESLs) are now available that overcome these limitations. The labels allow a price or promotion to be changed anywhere on any label, anywhere, in seconds.

With vibrant colours and fully graphical displays the labels, that range in size, can display not only price and promos but a range of data including product origin, recipes, nutrition, environmental information, competitors’ prices, product reviews and many more. When linked to retailers’ ERP systems ESLs are, in my opinion, the final piece in the jigsaw for dynamic pricing to become a reality. 

For more on how ESLs work, watch this animation.

 

1http://www.businessinsider.com/why-grocery-stores-throw-out-so-much-food-2014-10?IR=TEU

2https://www.theguardian.com/environment/2016/jul/13/action-to-cut-food-waste-gains-momentum-across-europe

3Survey of 2,200 US consumers by Bain & Company and ROI Consultancy Services

4RIS, Pricing Intelligence Goes to War, January 2014

Topics: electronic shelf label, ESL, price change, price accuracy, reduce waste, dynamic pricing, big data