If the recent 2014 holiday season taught retailers anything, it’s that the stakes are at an all time high. E-commerce spending on Cyber Monday reached over $2 billion for the first time, making it the largest online shopping day in history. Online shopping during the holidays continued to grow from there and of course the competition grew with it.
Since 84 percent of shoppers say price has the biggest influence on their shopping decisions, prices are even more important when compared to the large pool of retailers selling the same goods.
This means that retailers need to build competitive analysis into their strategies, regardless of the channels they use.
Competition in e-commerce
With countless retailers vying for the same customers, they have to find something that positions them as unique.
Many online retailers did this during the holiday season by advertising free shipping up until a certain date to encourage sales because 75% of shoppers admit that they would switch retailers if one did not offer free shipping.
But before shoppers were swayed by great shipping perks, they had to find the prices agreeable, which is where a dynamic pricing strategy comes into play.
One claim to fame of dynamic pricing is that it takes the competition into account when calculating new prices for retailers. In such a hyper-competitive industry, this is necessary to win sales. Besides competitor pricing, there are also many other factors that go into a dynamic pricing strategy.
Dynamic pricing has been made famous in retail by Amazon and other companies. Amazon is one of the biggest proponents of dynamic pricing, as it is known to change prices every 10-15 minutes and even sold 426 items per second last holiday season.
At its core, a dynamic pricing strategy aims to help retailers optimize sales and profit by changing prices according to pricing variables. In order to boost sales, a retailer might drop prices temporarily when traffic is slow or when they want to move more inventory.
Retailers should also look for opportunities to increase prices and capture more margin when possible, for example, when a competitor is out of stock. If demand can sustain a small increase in price, then retailers can gain more profit from each sale.
Dynamic pricing has been all the rage in online retail, but it has been more tricky to adopt this strategy in-store. Often in physical stores, prices are displayed on each individual item, so updating them is a time consuming and costly process. Employees have to manually mark down (or up) items or update their computer system to make sure that the correct price comes up when they are scanned. However, some retailers are changing this up by introducing pricing automation technology.
Kate Spade is one of those retailers bringing the digital advances of online shopping to one of its brick and mortar stores. In the Kate Spade store in Tokyo shoppers don’t see price tags on each item. Instead, they consult iPads close by to determine the product pricing. This makes it easy for the retailer to cut down on the labor usually involved in updating prices. Say the store has a few items that were recently featured in a magazine and they’re flying off the shelves. Kate Spade’s iPad pricing allows the store to quickly increase prices to capitalize on the popularity.The opposite is also true. If the weather has been unfavorable and few shoppers have been making purchases, the store can decide to display a lower price to help products move a bit faster.
Beyond pricing, Kate Spade is able to get even more out of its iPad strategy. With a few taps, shoppers are able to receive recommendations based on previous purchases or even great add-ons for the product they’re considering that day. Additionally, shoppers can check stock availability to see if Kate Spade has the size and color they’re looking for in-store or online.
The DIY and home improvement retailer, B&Q, has also tested variable pricing in its stores. Its strategy aims to regulate the flow of traffic and reward frequent shoppers and bundlers. Electronic price tags in B&Q stores display lower prices earlier in the day and week to incentivize shoppers to make purchases off-peak. Also, shoppers who are buying multiple related items or frequently buy from the retailer are quoted lower prices, compared to a first time shopper who only buys one thing.
The digital pricing strategies employed by Kate Spade and B&Q are great ways to bring the best of online shopping to brick and mortars. It brings together loyalty programs, optimized pricing, upsells and cross-sells; all within earshot of helpful sales assistants.
As the world of ecommerce continues to become even more competitive, retailers on all channels will need to add value to the shopping experience. Digital tools are one way that retailers can bring pricing and product details straight to shoppers, combining the best of the online and in-store experience.