How to Use a Dynamic Pricing Strategy for Your Shopify Store

If you have a Shopify store, then you likely already know that the market is forever changing, especially in the online marketplace. Therefore, to keep your sales at their highest, your pricing strategies have to change along with the prevailing market conditions. Dynamic pricing strategies will allow your store to be at the forefront, and still make profits, no matter the conditions of the market at that time.

Not a lot of people know how to use dynamic pricing strategies for their Shopify stores, however, and this can lead to a bit of confusion in how to see returns on their investments. In an effort to take that away confusion, let’s break down dynamic pricing strategies, so you can learn how to use them in your Shopify store successfully.

Dynamic pricing basics

In dynamic pricing, a price is never firmly set. Instead, it is constantly changing to suit the current market conditions. It is similar to the law of supply and demand in that when the demand is up the prices go up, and when supply is up the prices go down.

The difference between supply and demand and dynamic pricing is that dynamic pricing relies on more than just whether or not the customer wants the product. In this case, the customers already want the products but the amount of profit you make depends on more than just demand.

Time the purchase is made

Knowing what time of year your products are in the most demand is the first factor to consider in your pricing strategy. In the season of highest demand, your price will go up to maximize profit. Typically buyers will pay more for products at certain times of the year. For example, during the holidays. It’s not uncommon for consumers to pay above average for products to get that perfect gift for their loved ones. Conversely, if your store specializes in football accessories, odds are your sales will not be going up during basketball season.

Time it takes for you to deliver

When consumers pay more for a product, they expect fast delivery. If your Shopify store delivers items quickly, then it stands to reason that you can get away with charging a higher price. The cost of convenience generally justifies the higher price. However, if you take longer than the expected delivery time, your customers could be left feeling duped by your higher price and next time may go to your competitor.

Targeting of particular groups

This is one element of dynamic pricing strategies that has been seen as controversial to some, and that is because some groups will be given different rates than others. The idea is that the standard of living is higher in some parts of the country, so charging more for those products won’t be as big of a deal. In lower standard of living areas, the prices will be lower so that they can still purchase the product, but your store can still make a profit. It’s important to note that the key here is not to change pricing solely based on race, gender, or sexual orientation. Although difficult to prove, you don’t want to open your online store up to that kind of scrutiny.

Peak user pricing

Similar to time of year pricing, if the demand is high, the price can go up. The difference here, however, is the sudden surge may have nothing to do with the time of year. For example, if you have a product in your Shopify store that Kim Kardashian happens to promote randomly on Instagram, you could see a spike in sales. During this peak time you can maximize your profits by adjusting your price.

Quantity of goods being purchased

If there is a customer that buys your products in bulk, or they are always there to buy from you, then it is good idea to make an exception for this customer, and reduce the price for them. It may be risky for first time bulk buyers, as they may not be a return customer. On the other hand, they could become exceptionally loyal allowing you to not only recover quickly from the discount, but make a higher profit overall.

Hint: You can utilize technology from software like IntelligenceNode’s Incompetitor to analyze these price peaks in real time and adjust, automatically.

Pricing your store

These are just a few of the factors you can use in your dynamic pricing strategy in your Shopify store. Be flexible, keep an eye on demands, and be sure not to focus solely on exploitation of customers. By pricing your goods based on the market conditions, your store should be able to make a consistent profit all year long.

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Competitive Pricing Strategy – See How Products Are Priced

Effective pricing is essential for a business. That’s the only way they’d know at what price they should offer a product, while maintaining a good profit margin and keeping up with the competition. A business can pick from a variety of pricing strategies and the selection depends on different factors.

A business can set a price to maximise profitability on each unit sold or on the overall market share. It can set a price to stop competitors from entering the market, or to increase its market share, or simply to stay in the market.

Pricing is one of the most important components when it comes to creating marketing strategies. The price is one of the first things that a consumer notices about a product and is one of the deciding factors when it comes to their decision to buy it or not.

Needless to say, the competition in the market is on a constant rise, especially with the ever growing popularity of online shopping. This means that businesses need to keep an eye on their competitors’ behaviour while setting prices in order to get the much needed competitive edge in the market. Comparing prices online is easy and customers are well aware about the monetary value of a product. These factors are also important considerations while setting the price for a product or service.

Among the various models of pricing, competitive pricing is one that has caught the fancy of many businesses. Having a monopoly is one thing—you can set the price the way you want (of course there are few government norms) but setting pricing strategies based on competitors’ behaviour isn’t an easy task.

Here’s an insight to competitive pricing theory, used by most companies around the world.

What Is Competitive Pricing Strategy?

When a product is priced in accordance with what the competition is charging, it’s known as competitive pricing. It is one of the four major pricing strategies adopted by most companies. The other three include, cost-plus strategy, where a prefixed profit margin is added over the total cost of the product, demand pricing, under which the price is set by establishing the optimal relationship between volume and price, and markup pricing, where a percentage is added (as profit) over the wholesale price of the product.

When it comes to competition based pricing strategy, the purchasing behaviour of customers is an important criteria. Some of the factors that companies take into account are costs, competition, and price sensitivity. In order to ensure profitable sustenance of the business, managers have to set the price such that it covers the production cost, company overheads costs, and also offers suitable profits.

In order to establish the right competitive price for your product, you need to take into account the product life cycle and the stage your product is in. Competition is one factor that you can ignore if your product is in the developmental stage. However, if it’s a part of the market, and fighting with a relatively high number of substitutes and competitors, then considering the actions of your competitors might be one factor driving your profit. You have three choices—price your product lower, higher, or same as your competitor. The most common tactic is to set the price according to the competitors, also known as competitive pricing strategy.

As already mentioned, there are three things that you can do in order to set the right price for your products:

1. If you’re planning to set the price above the price of your competitor, then you’d need to bring in new features and improvements in your product that would justify the increased price.
2. Pricing below your competitor’s price depends on your resources. If you can increase the volume without affecting the production cost to a great extent, then this might be a good strategy for you. However, there’s the risk of diminishing profit margin and you might not be able to recover your sunk cost and even face bankruptcy. So, it’s really important that you evaluate each step of your competitor while establishing the price for your product.
3. When you set a price equivalent to your competitor, then the differentiating factors cease to exist. The focus shifts to the product itself, and if you can offer more (and better) features at the same time, it’s a win-win for you, and your competitors will fall behind.

So, competitive pricing is a game to play. Competitive pricing intelligence demands that you have in-depth knowledge of your market and target audience.

A lot of effort goes into the process of establishing the price based on competition. According to a recent survey, minor variations in prices can lower or raise profit margins by more than 20-25%. Competitive price analysis is essential to competitive pricing strategies. Let’s look at some competitive pricing examples, to get a better understanding of this process.

Competitive Pricing Examples

The concept of competitive pricing is best understood when there are only two competing parties. Suppose, two companies manufacture detergent for washing clothes. Both will charge the same price and if one company wants to compete with the other, will advertise saying why it’s product is better.

Even big corporate giants sometimes resort to competitive pricing strategy when they want to enter a new market. They have to set the price almost equivalent to their competitor, even if the production cost is high. In case the production cost is higher, they’d have to play around and adjust prices of packaging, advertising, and distribution.

Some companies have to use competitor based pricing, as often price is the only factor customers consider while buying a product and the switching cost for buying a product from two different stores is very low. However, in many cases like software, competitor’s behaviour or data shouldn’t be the central factor for determining prices. There are numerous other variables that need to be considered in this case.

While keeping the competition factor is important while setting prices, it shouldn’t be made the central pillar.

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3 Steps for Starting a Pricing Intelligence Strategy

Pricing intelligence is absolutely vital to being successful today in business. As part of the “Marketing Mix,” price has always been top of mind for marketers and business leaders. Ineffective pricing strategy truly hinders an organization’s ability to grow and be profitable. It can even derail success despite having an exceptional product-market fit. One could make the case that price is the most import part of the Marketing Mix. So how can marketers and executives ensure they’re optimizing their pricing strategy and setting their business up for success in a competitive pricing landscape?

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