As a sea­soned trav­eler, you’ve prob­a­bly dis­cov­ered that find­ing the low­est air­fare involves buy­ing tick­ets at the right time. Sur­pris­ingly, that win­dow may be six weeks before the sched­uled depar­ture date.

For years, air­lines, hotels, and rental car com­pa­nies have used dynamic pric­ing tech­nol­ogy to pro­vide buy­ers with opti­mal prices that max­i­mize profit mar­gins and rev­enue. And using data from loy­alty card pro­grams, some gro­cery stores offer dif­fer­ent prices to dif­fer­ent con­sumers for the same item. Espe­cially in retail, where profit mar­gins are razor thin, retail­ers can use every pos­si­ble advan­tage, includ­ing offer­ing real-time prices based on their cus­tomers’ shop­ping his­tory and behavior.

In the past, many brick-and-mortar retail­ers have per­ceived the cost of imple­ment­ing in-store price changes as too high to be worth the time and money. But today, not only is the tech­nol­ogy becom­ing more advanced, but the cost of imple­men­ta­tion is drop­ping. Soon, the ben­e­fit of higher profit mar­gins will likely sig­nif­i­cantly out­weigh the costs.

For this rea­son, brick-and-mortar retail­ers are becom­ing more inter­ested in elec­tronic self-labels that sync with the point-of-sale sys­tem and update prices on shelves in real time. With this sys­tem, retail­ers can change prices through­out the day—for exam­ple, they can have a morn­ing rush sale or a clear­ance sale to vacate fresh prod­ucts by the end of the day. France has been a major adopter of this tech­nol­ogy and, as hard­ware costs have gone down, more and more retail­ers are becom­ing inter­ested in the technology.

For instance, gro­cery stores such as Safe­way and Kroger are using their loy­alty card pro­grams to ana­lyze how their cus­tomers shop in order to deliver per­son­al­ized pric­ing given the items they buy most. Using dif­fer­ent meth­ods to deter­mine per­son­al­ized prices, they give dif­fer­ent coupons and prices to cus­tomers based on their shop­ping behav­ior in the hope that they will spend more.

Shrewdly, Safe­way uses its dig­i­tal pric­ing per­son­al­iza­tion pro­gram to respond to news­wor­thy events. Dur­ing a recent power fail­ure in Wash­ing­ton, Safe­way offered local res­i­dents coupons for freezer prod­ucts, empathiz­ing with their cus­tomers and mak­ing it eas­ier for them to restock once the power came back.

As we learn to cre­ate dynamic pric­ing in the brick-and-mortar world, it is obvi­ous that retail exec­u­tives will want to have more price dis­crim­i­na­tion online as well. Online retail­ers are exper­i­ment­ing with dynamic pric­ing, per­son­al­iz­ing pric­ing based on cus­tomers’ buy­ing and brows­ing his­to­ries. E-commerce stores can use dynamic pric­ing in var­i­ous cre­ative and effec­tive ways. For exam­ple, when cus­tomers aban­don their carts, online retail­ers can send an email offer­ing a spe­cial dis­count to com­plete their pur­chase. Or, if a cus­tomer tends to browse in a par­tic­u­lar cat­e­gory, the retailer can offer a cat­e­gory dis­count that expires in 24 hours.

Although large online retail­ers such as Ama­zon have been using dynamic pric­ing suc­cess­fully to max­i­mize prof­its, elec­tronic retailer Best Buy is also ded­i­cated to a dynamic pric­ing model and has started price match­ing against its retail com­peti­tors in every prod­uct cat­e­gory. At this year’s Shop​.org Sum­mit, Amitabh Biswal, mer­chan­dis­ing oper­a­tions man­ager at Best Buy Canada, explained, “If a cus­tomer is able to get a price online, they should be able to get it in the store as well. So we’re able to respond and react to com­pet­i­tive [com­pe­ti­tion] more quickly.”

Although offer­ing cus­tomers the most com­pet­i­tive prices may be essen­tial for a retailer like Best Buy, most retail­ers may find it bet­ter to focus on pric­ing fairly and build­ing a rela­tion­ship with each and every cus­tomer. For exam­ple, Ace Hard­ware has been work­ing on build­ing a pric­ing demand sys­tem that empha­sizes cus­tomer rela­tion­ships and places impor­tance on fair pric­ing rules above all else.

Although much of this has been man­ual to date, the tech­nol­ogy is catch­ing up to pro­vide live dynamic pric­ing through the online shop­ping chan­nel as well. I expect many online retail­ers and brand man­u­fac­tur­ers to ini­tially focus on max­i­miz­ing the price they can get from each customer—that is, not the low­est and not nec­es­sar­ily the high­est, but rather what peo­ple are will­ing to pay for the prod­ucts they’re inter­ested in buying.

Addi­tion­ally, some brands and online retail­ers will see the value of con­nect­ing cus­tomer loy­alty with price. For exam­ple, jacket A might be mar­keted to an exist­ing cus­tomer base that always buys sale items, so it will be priced for them as a being on sale. And jacket B might be designed to tar­get a cus­tomer seg­ment that always wants the lat­est fash­ion and is will­ing to pay a pre­mium for some­thing unique that only they get access to. This kind of dif­fer­en­ti­a­tion not only allows the retailer or brand man­u­fac­turer to max­i­mize prof­its on the jack­ets, but also enables dif­fer­en­ti­a­tion across retailers.

Now that retail­ers are real­iz­ing that dynamic pric­ing can increase prof­its and improve sales, and as more and more dynamic pric­ing tech­nolo­gies emerge, you can expect to see more retail­ers exper­i­ment and include dynamic pric­ing in their strat­egy. From an indus­try per­spec­tive, I think this is excit­ing. As a con­sumer, I’m not look­ing for­ward to fight­ing to buy a jacket like I do for my hol­i­day plane ticket.

2 comments
Geoff123
Geoff123

With dynamic pricing do you have any legal obligations to price establish before you can discount?