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One of the great challenges for an eCommerce business that wants to launch itself abroad is to get their pricing strategy right. If you’re immersed in this expansion process, you’re definitely considering what the surest way to maintain your sale revenue in each market would be.
Dynamic pricing techniques are the key to exploiting each sales opportunity regardless of where it occurs. In this article, we’re going to look at the technology used in dynamic pricing and how to make the most of it.
Dynamic pricing strategies are focused on adjusting the price for each product according to the market, supply, and demand. Their main objective is to adapt themselves at all times to find the best sales opportunities with the maximum profits for the eCommerce business.
The world’s leading online stores, including marketplaces and other sales platforms, already use dynamic pricing techniques so as not to miss out on a single opportunity and to get the best return from each transaction.
It opens a window to the competitiveness of all eCommerce businesses with respect to the different actors selling the same products. If giants like Amazon, Alibaba, and airlines use it, how could it not be the solution you need to internationalise your eCommerce business?
If we were to talk about the advantages that dynamic pricing implies for the internationalisation of an eCommerce business, we should focus primarily on these three:
Adaptation to the real market: a dynamic pricing strategy allows an eCommerce business to move in the same arena as its competitors. After performing benchmarking, it’s as easy as identifying the competition that you want to take as a reference point and put the machine to work to start fighting them, one on one.
A secure profit margin: a good dynamic pricing strategy is one that allows the online store to maintain its profit margin with each price fluctuation. The algorithm that governs the strategy has the minimums established to ensure that the prices set always represent a certain percentage of profits for the store.
The discovery of new opportunities: establishing a dynamic pricing strategy lays the foundation for the study of the competition in real time and over the long term.
Thanks to the study of the changes made, identifying the moment in which they occur and the variance in the amount, it’s possible to foresee new fluctuations, define the cycles involved in supply and demand, and to cater to new opportunities that may not be covered specifically. This, when launching in a new market, is a clear advantage for optimising your sales strategy.
Now that we know how dynamic pricing can help internationalise your eCommerce business, you need to know where it comes from and how it works.
Every dynamic pricing strategy requires a tool that will execute it, a piece of software capable of accumulating data, processing it, and executing actions in response to the variables introduced by the algorithm. What technology allows this technique to be implemented?
Remember these three words for the rest of the article: automation, big data, and machine learning. Let’s examine them one at a time.
Dynamic pricing is a technique that begins with process automation. Even though this is an exercise that could be performed manually, the complexity and breadth of the factors involved make it titanic enough to be impossible.
Imagine for a moment what it would mean to review each product in the catalogue of each of your competitors one by one to extract the tendencies that you’ll use to obtain the prices for your store. Not at all appetising.
It’s at the moment of implementing the dynamic pricing strategy that the automation technology comes into play, making everything possible. It executes the actions defined by the strategy based on the variables that have been given and analysed. Thus, in each case, an answer is given.
The fact that the implementation of dynamic pricing is, in short, an automatic action means that there’s a considerable savings in human cost and time.
This allows eCommerce managers and analysts to focus on higher-level tasks, such as studying data, extracting conclusions, and making the best decisions for the business.
The monitoring of each and every one of your competitors in each market in which you intend to expand your eCommerce business results in a vast amount of data that needs to be stored, processed, and analysed. Without a tool capable of doing so, it would be impossible to consider the actions to be carried out.
This is a value to keep in mind, above all when it comes time to choose the best dynamic pricing solution for your eCommerce business. Depending on the size of the catalogue to be covered, the variables you want to measure, and the number of competitors, you’ll have to choose a piece of software that is powerful enough to cover all of your needs.
Let’s look at a practical example. Imagine that an online supermarket wants to expand its network of stores to additional markets with the three variables that characterise its offerings:
Fresh products whose price depends enormously on stock and seasonality;
An enormous catalogue of products of all kinds, not all of which have to be edible; and
In-house offers and discounts based on the demand and the seller’s warehouse, which on occasions needs to adjust its prices to move merchandise.
With all this, the analysis of the competition of an online supermarket will have thousands or even millions of pieces of data accumulated after each registration.
The part of big data that dynamic pricing is concerned with embraces its capacity to store data and to organise it correctly. Having millions of pieces of unstructured data can be as dangerous as having no information at all, if not more so.
Let’s say that the technology that makes the world of dynamic pricing move is machine learning. And just because it’s been left for last doesn’t mean it’s the least important. As such, this technology, an indispensable part of artificial intelligence (AI) systems, is the true executor of the changes defined in the dynamic pricing strategy.
The definition of a dynamic pricing strategy requires establishing variables between concrete events and the response as an action that the system has to carry out. It’s thanks to machine learning that the dynamic pricing software can identify patterns, read casuistry, and execute a response that is in line with the values set by each eCommerce business. This allows the optimisation of the pricing strategy to be continuous and directed towards the greatest sales revenue for the business.
When the three legs of dynamic pricing come together is when you can say that the strategy joins the technique and, therefore, there are actions to be carried out. But what measures and controls them? The algorithm of each piece of software. This optimisation software is what each tool depends on and what they’ve been conceived for. Its objective is none other than to help you know, in each case, how the market in which you are selling works, what price you should be selling at, and how predisposed the users are to buy under those conditions.
The algorithm calculates and optimises the strategy based on the prices of the competition, the eCommerce business’s inventory, offers and promotions defined in time (even if those dates have passed), and the volume of sales achieved in each of those moments. With this complete panorama, the dynamic pricing software can:
Set the new best price for each product, within the established margins.
Make predictions and allow them to be analysed by the eCommerce managers before specific dates arrive.
Find the best starting price for new products being launched for the first time in the markets you’re planning to expand to.
Up to now, we’ve focused on talking about the competition by explaining how dynamic pricing helps internationalise your online store. There is, however, another inevitable factor in this equation which is, really, the one that generates all of your profits: the consumer.
We’re currently immersed in a paradigm of digital purchases as never seen before, perhaps never even imagined, at least with such short-term development. This adds a new variable that must be considered when taking your online store to another country: how can you adapt the prices of your products to the local user and their customs?
Well, dynamic pricing returns once again like a superhero to shed light on the problem. We’ve already said that thanks to machine learning technology, dynamic pricing software can execute actions based on the casuistry forecast. This also corresponds to the activity of each user, making it possible for the price to be readjusted according to their interaction with the eCommerce business.
In an increasingly changing and global environment, knowing the idiosyncrasies of each user when faced with a purchase decision is essential to improve sales. This is possible thanks to dynamic pricing actions based on the behaviour of the consumer. In each of your new markets, you can perform A/B testing by offering discounts after the first purchase, by creating urgency after the second visit to the same product, or even by duplicating offers on similar products.
All of the marketing techniques that you can use to improve the perception of your online prices can also be combined with this pricing technique. Because the variables are endless, you can define ad hoc as many as you need to find the key that makes you sell more and better.
When internationalising your online store, there’s a new element that you’ll have to deal with: the local currency. While a currency is sometimes shared, like in the European Union, the next step is that of the precise the value of a currency that depends on the average standard of living in each country.
A priori, this might seem like more a question of business and marketing than of pricing strategy, but it’s a factor that needs to be considered when defining the parameters that will be included in your dynamic pricing action elements.
For example, in each market, the value of pennies or cents can be so ridiculous as to disregard them entirely. Or perhaps quite the opposite is true, converting this into a key factor in differentiating yourself from your competitors.
This is something that can normally be referenced during the benchmarking, when carrying out an extensive analysis of the competition, but it’s impossible to know up to what point to do so if you don’t know how the users will react to this factor.
With dynamic pricing, it’s possible to adapt your prices to the different cases that arise with these characteristics until you find the point that works best for your eCommerce store, wherever that may be.
In short, dynamic pricing is one of the pillars that will allow you to settle your eCommerce business into as many new markets as you want. There’s no doubt that technology calls for new techniques that will allow you to make your business as scalable as you need, without wasting resources and while obtaining the maximum profits at all times.