Currently, there is an abundance of news on dynamic pricing, which predictably makes the subject matter more confusing. Below, we share an important emerging perspective on the issue that should come as relief to retailers. Refer to our white paper, Exercising Retail Price Leadership.

With the increasing availability of competitive pricing data, there is even more data to justify competitive price changes as part of retail pricing strategies.  But is it strategic? Dynamic retail pricing is the process of changing prices in response to internal factors such as sales and profit goals, price image and inventory; and external factors such as competitor prices, costs and demand. Amazon invented dynamic pricing more than a decade ago. Many have followed. The single largest challenge with dynamic pricing lies in avoiding the trap of a simple “price matching” strategy.

The 2014 Holiday Season saw a 187% increase in retailers price matching. Price matching, commonly characterized as a “race to the bottom”, can erode profitability, long-term price image and is not sustainable.  According to Paula Rosenblum, RSR Research, “You know you are in trouble when the biggest shopping day of the year (2014) is the day after Christmas.”

A more recent, evolved and strategic approach to dynamic pricing is to use pricing science to analyze the effect which competitive pricing moves have on the category profitability, substitutable products, overall price image, and price consistency across product lines. These effects can now be accommodated within current retail pricing software solutions, providing a more sustainable, long term pricing strategy which will accelerate adoption of pricing innovations.

Register for our webinar April 21, 2015 entitled “Pricing in an OmniChannel World: A Retailer’s Survival Kit.”

Our blog commitment: provide useful, thought-provoking perspectives and resources for retailers. Please send your thoughts or comments to me directly at tmanning@cleardemand.com.