Every web shop owner can relate to this. As a salesman the benefits you make are directly related to the volume of your sales and obviously, your prices. That’s basic knowledge every merchant probably knows. But what everyone doesn’t t know, are the numerous strategies you can use to adapt your pricing strategy to the market, to your customers’ behaviors, etc. That’s what we call dynamic pricing and here are some different ways to leverage on it.
A customer’s behavior is a phenomenon which often evolves over time. According to the law of markets, demand and supply balance each other through price adjustment. This means that prices spontaneously increase when demand is greater than supply; and prices decrease when the supply surpasses the demand.
When is your demand the highest? When are your customers most likely to buy your stuff? By what time are they more likely to be shopping on your e-commerce website? If you can identify these times, time pricing strategy recommends to raise your prices in high activity times and cut them when activity is supposed to be low.
This way, you can in one hand, grow your turnover during the period your website is supposed to naturally drive a high rate customers’ activity; and on the other hand, by applying low prices, you can also attract customers during periods tagged as low activity periods. That is dynamic pricing.
For example, if you find out that people shop more when they are in office, thus during work hours, you can simply set higher prices during work hours and by the time they are heading home you drop the prices. Another choice is to raise prices during summertime since people on holidays are less reticent to spend their money. As you can see, depending on the time of the day, the day of the week, the season of the year, you will first need to get some insights about your market behavior. Then you can try out this dynamic pricing strategies.
Demand driven pricing
This type of dynamic pricing shares the same context with the previous strategy (time-based strategy). The two strategies can reasonably be classified as demand driven pricing. In the case of time-based pricing, we set different prices for different times. As previously stated, customer behaviour varies over time; Demand follows the same evolution since it is related to customers. But this way round, prices are indirectly driven by demand through time.
What’s special about demand driven pricing is that now the prices become much more dynamic than ever. This time we focus exclusively on demand with no constraint to set price for periods of time.
The prices then automatically follow and adapt to the evolution of the market in real time.
Since we are always adjusting to the market, our prices could sometimes be very unstable; and may be found too inconsistent by our customers. That’s something one must be aware of when adopting this strategy which offers overall the same advantages as time-based pricing.
Price can be initially set upon the behavior of your competitors. If you are new in a highly competitive market, starting with a penetration pricing strategy can help you struggle your way through that market. Then you can refit your prices as you conquer more and more customers.
Quantity based discount
The more product units you buy the less it costs you to buy a unit. Quantity based discount encourages customers to buy as many units of a particular item as they can afford. Each purchased item is a good deal for them. And everybody likes a good deal.
Quantity based discount is also meant to reward those who buy large amounts of your product. This type of customer is probably going to buy your articles whether you offer a discount or not. Although a lower price can please them, what you want to achieve here is to win their loyalty towards you.
By rewarding the fact that they can’t help buying your products, you build a special bond with them; a bond that will make them not to go to your competitors, would you need to raise your prices for any reason.
Previous orders based discounts
Quantity based discount can be applied to customers who buy in small quantities but multiple times. There is a dynamic pricing offer suitable for every type of client. So, this type of client will be typically coming to your store on a regular and frequent basis. Since they are buying small amounts, you will have to decide how to reward them with possibly a discount. It can be a bit tricky to offer them a discount on each item like previously stated. Instead, you can offer them a giveaway item, or a free product, or even a discount plan, provided that they reach a defined number of orders for example, or a defined number of overall purchased items. For example, you can reward them with a discount every time they reach a milestone of twenty purchased items; A fidelity card as a reward of loyalty can surely be a good option too in this case.
Loss leader strategy
This dynamic pricing offer is a kind of promotion you run specifically on one product, or on a reduced set of products. It works like a bait. Those products, you offer them at very attractive prices, not to say irresistible! People will follow these products that are called loss leader products and they will land on a page of your store that you prepared for a specific product.
So, using a product’s irresistible price, you hook your prospects to a page of your shop where you have made sure they will have no choice but buy other irresistible products, but this time at benefiting prices. A hell of a genius strategy!
Imagine you have that great makeup kit, with a glamorous package and such wonderful items inside, but at a seemingly high price. You can proceed like this. You suggest your loss leader product to a prospect browsing your site. In this case the loss leader can be a popular lipstick offered at a low price. Following the lipstick, your prospect reaches a page where, besides the lipstick, you have beautifully displayed your makeup kit. There! You can now consider yourself a dynamic pricing practitioner with a great loss leader strategy.
Loss leader products should ideally be common and cheap goods. Products everybody needs and use every day. They should be cheap so that they don’t generate much loss as you break down their prices; If they are common goods it means people are already interested in them anyway.
So, you just focus on making the price irresistible. You are offering to your customers, at a very low price, a product that they would have bought anyway. Doing so, you step forward and stay ahead of your game against your competitors. Changing your loss leader product often is a good practice to keep your customers interested, using the same product all the time can make them loose interest.
Conversion rate based pricing
If you have much traffic on your online shop but much less buyers, this is the tip you may have been looking for. Conversion rate is an indicator of how many of your website visitors actually bought some of the articles you are selling. If his ratio buyers over visitors is rather low, it either means your products are not attractive or your prices are somewhat repealing. In that second case, dropping your prices should be a winning move. And you can verify the effectiveness of this dynamic pricing by frequently checking the variations of your conversion rate.
So, following the evolution our website conversion rate, we adapt our pricing to increase our turnover and be proactive on the market.
Is it even necessary to talk about this? Yeah? OK! Here we want to raise awareness. It’s a way to offer your potential customers unusually great deals.
You let your customers buy your great stuff at a cheaper price than usual. And that can be really really appealing to them. Everybody likes to know they are making a great deal. The better the promotion the more are you likely to attract people and grow sales and customers.
But beware of not affecting your customers’ usual behavior. The risk with this type of dynamic pricing “promotion” is to end up with customers who wait for your promotion to buy your products. Don’t make promotional offers too often or on a too long time. Promotions are meant to serve as a boost. You don’t want people to get used to them. They have to remain an exceptional event and to be kept short in time.
To summarize, you start a promotion to have people buy and test your products and you let your products finish the job for you.
So many types of strategies man! So many that we only scratched the surface here. And all these strategies are now available for you.
Conditional Discounts for WooCommerce gives you a wide range of dynamic pricing strategies to help you make as much profit as possible from your WooCommerce online store. Try out our WAD (WooCommerce all discount) WordPress plugin and see your benefits grow like never before. A large number of features are made available to let you a maximum of options and flexibility while defining your own dynamic pricing strategy.