We all search for the best prices, and comparison sites help us ensure we find the best deals and are part of our shopping psychology. It has become common practice to assume that the best deals are to be found online, but are all consumers aware that the more you shop online, the more information is collated about you and the more this can influence the price you are offered?
So called dynamic pricing is a process adopted by online retailers to adjust prices accordingly to your location and purchase history. The more detail you have imparted the more the price you pay could alter. It’s not a new practice, it started in the airline industry and was swiftly adopted by the likes of Amazon and Walmart. What is a more recent development however is the degree to which your online behaviours are monitored and used to predict your online decision making processes – this detail is captured and used to inform the price presented.
So why was dynamic pricing such a big deal in online retail in 2015? The continual increase in the success of online means the expectation is that non-store sales will rise by a further 7-10% over the year ahead. That means that in order to maximize their share of this increase in sales, retailers have to test their prices accordingly. Manually changing the prices on thousands to millions of SKUs won’t make the cut in such a competitive market. Dynamic pricing is therefore a key tool to enable retailers to stay competitive and profitable in a crowded market. Whatever your view it’s hard to overstate the importance of getting pricing right. On average, a 1% price increase translates into an 8.7% increase in operating profits.
For consumers that suspect dynamic pricing is influencing the price they are offered, it is recommended to use price comparison sites first and to clear the history and cookies in their browser so the information isn’t used to inform the offer made.
The implications for senior commercial, marketing, brand and product roles in retail will be interesting. The need to gauge and manage the relationship between best value, customer loyalty and profitability will become more and more critical and could lead to making some challenging decisions.
Tamsin Terry-Lush is a Principal Consultant in the Retail Practice at Berwick Partners.