Dynamic Pricing Strategies Key To Holiday Success

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

360pi report finds dynamic pricing strategy gurus Amazon.com, Overstock.com were the best holiday performers

A new report released by pricing intelligence vendor 360pi found that dynamic pricing strategies are the best strategy a retailer can use to boost sales. During the recent holiday season, retailers waited with baited breath to see just how beneficial or harmful the highly promotional season would be. The report entitled “Retail’s 2013 Holiday Winners and Losers” report found that Amazon and Overstock were the champions of the holiday season because of their dynamic pricing strategies. However the report also singles out several other “winning” and “losing” pricing strategies that retailers employed this holiday season so retailers can be better prepared for next year’s holiday rush.

360pi found that, while a majority of retailers change prices daily on 5 to 10 percent of their merchandise, there is still more work to be done to be successful with a dynamic pricing strategy. During a non-holiday season, Amazon averages price changes on 15 to 20 percent on its assortments. This year during the holiday season, however, the Internet giant took it several leaps farther. During the month of November, the company made 3 million daily price changes. On Black Friday alone, the company changed prices on roughly a third of their sampled assortment. Indeed, on a scale of -5 (below expectations/very poor) to +5 (above expectations/excellent), 360pi rated Amazon a 3 in terms of financial performance. Overstock was close by with a 2. 

The results also showed that retailers that offered steep discounts on Black Friday saw greater financial success than those retailers that kept their prices steady. While steep discounts can end up hurting profit margins, online giant Amazon, which discounted more than any other retailer, still survived the holiday season. In comparison, 360pi found that Walmart saw a decrease in its financial performance, though it wasn’t because of lowered prices. Rather, 360pi suggests that the company’s decision to raise prices on certain items on Black Friday could have played a key role in the retailer’s holiday financial difficulties.

The report also found that retailers that kept their discounts in place after Cyber Monday also had a stronger holiday. Overstock.com, Home Depot, Rakutan.com, and Costco were the winners in this category, beating out Office Depot, Toys “R” Us, Sears, and Hhgregg.

While the success of any strategy depends on how well a company executes it, along with other environmental factors, there are still some pricing strategies that 360pi found to be problematic for retailers this holiday season. These included pre-Black Friday and all-season discounting and Buy One, Get One (BOGOs) strategies.

There are a great number of challenges facing a retailer when striving to implement a dynamic pricing strategy. There is a lot of pressure to deploy a successful strategy in order to stay relevant and abreast of the constantly changing market, as well as to keep up with customer demand. At the most recent annual Shop.org Summit, experts discussed how dynamic pricing can lead to chaos or what feels like a loss of control over pricing, especially for a brick-and-mortar store. However, dynamic pricing can also put companies on an even playing field and can help shed light on a company’s overall business strategy, ZDNet says. Overall, the experts agree that making sure the technology plays into the company’s greater goals is key to seeing success with this pricing strategy.