Dynamic pricing is a crucial tool for any small to mid-sized business owner to increase revenue. Using this strategy takes a lot of thorough research and taking advantage of market trends, examining past sales, and keeping up with consumer demand and the competition in real-time.
So, what is dynamic pricing? Simply put, it is the process of raising or lowering the costs of products based on customer interest, the seasons and holidays, release dates, and other factors.
For instance, snow shovels, holiday cards, and chocolates are in peak demand in November and December. Using this strategy, a merchant would raise prices on these products during those months to benefit from increased demand and a captive consumer base. Conversely, business owners may use this approach to lower the costs on items whose time has passed, such as leftover beach blankets and mosquito repellent from the summer.
When you change costs based on dynamic pricing in your brick-and-mortar store, don’t forget to reflect these changes in your online shop and sales app. Feature your pricing items prominently. Consider sales displays at the front of the store and in the back of brick-and-mortar establishments. They should also be front and center on your website’s homepage or your sales App.
Like all business strategies, this requires a solid foundation to produce a positive result. Here are steps to make your business successful with the ultimate guide to pricing your products:
The first step to implementing a strategy is studying shoppers’ buying habits over the past few weeks, months, and years. This is where having a modern Point of Service (POS) program is highly beneficial. Premiere companies like National Retail Solutions (NRS) offer POS tools such as remote inventory and sales tracking that provide small business owners easy access to supply and demand for their products. Examining what items sold the most or least is when a business owner can best understand market fluctuation among their customers and plan on when to increase or decrease prices through dynamic pricing for small businesses.
When instituting dynamic pricing, it is essential to consider your customer base’s relative wealth. If your business, for example, is located in an underserved population, don’t make the mistake of expanding prices to the point that your loyal customers forego the purchase and get nervous that your establishment is becoming unaffordable. React on the fly. Once you increase based on dynamic pricing, you can always change back to the regular price, or a reduced sales point, if need be. That’s the beauty of dynamic pricing: it is flexible.
An important decision on dynamic pricing for small businesses is when to roll out new price points. For instance, a company that wants to raise prices on holiday cards should not wait until December to do so. The big shopping days start around Black Friday and right after Memorial Day and the 4th of July weekend. Regarding brand-new items, dynamic pricing can differ within a week or two. For example, a hardware store selling the latest and greatest lawnmower may want to increase the price upon release. Some consumers will always want to get the latest items immediately and won’t mind paying more. Psychologically, this strategy works and will make some shoppers think that more expensive items equal better quality. However, if the competition sees this and tries to undercut your sales by lowering their costs, you may have to cut prices to keep up.
For many small businesses, the changing seasons determine dynamic pricing strategy. The general rule is to increase prices on items when they are in season, as they’ll see the highest demand. Your loyal customers would be willing to pay more at their favorite store for a snow shovel in December or grilling equipment in July than during the off-season. Stores can also raise prices according to the holidays. For instance, you’ll want to heighten the ceiling on prices for Easter candy, Christmas decorations, and July 4th-themed items in the lead-up to those days. Additional examples of the seasons affecting this include hardware stores raising prices on rakes and work gloves in the spring and fall.
Do not change the cost of everyday items; this gives the perception of price gauging. As Global management consulting firm McKinsey & Company reports, the COVID pandemic is not a time to raise personal protective devices or hand sanitizer prices. In addition, if you see spaghetti sauce selling for more than usual, that does not mean you should raise the price. Customers will understand price increases on seasonal items but will be left confused when regular household staples rise in price. In this case, this will give the customer the impression of a random increase, and they’ll be left questioning how you operate your store.
Dynamic pricing is an exciting aspect of running a small business, and it keeps merchants on their toes and gives incentive for them to do their homework and always stay aware of the competition. By following the pointers above, proprietors will be well on their way to increasing profits and being a successful business.