Dynamic pricing is an important component of any digitization strategy and has become a decisive success factor in recent years, especially in online retailing. Online pure-players use this tool to change prices according to customer behavior. Dynamic pricing has long been standard in other industries.
By using electronic shelf labels (ESL), dynamic pricing can also be efficiently implemented in brick-and-mortar retail. More and more retailers are using digital price tags to manage their prices in line with demand. However, the focus is often on operational effects, meanwhile, the necessary price intelligence is lacking and thus significant potential remains untapped.
Together with a sports retailer, we addressed this problem and set up a pilot project. The IPA module “Dynamic Pricing” was integrated into the retailer’s merchandise management and initialized for one product group.
The applied pricing algorithms are demand-, supply- and environment-oriented and use not only internal data but also competitors’ prices to determine the optimal prices. Our scraping technology collects the price data of the defined competitors and brands on a daily basis.
Using the application, category managers adjust the competition rules and can define minimum, maximum and average prices as well as deviations from the RRP, among other things. These threshold values are treated by the algorithm as guidelines and are used as an influencing factor in the price calculation. If there is sufficient confidence in the system, the new prices are set fully automatically, transferred to the ESL systems in the stores and displayed just a few seconds later.
Currently we are still in the middle of the test phase, but the first results are promising. For the pilot product range, gross profit increases of up to 7% were achieved in the most recent clearance sale. By being able to react to short-term weather changes, the retailer has also been able to increase sales by 5% compared to other product areas. Fears that dynamic pricing might damage the price image have not yet emerged. On the contrary: on average, customers were able to profit from lower prices.