What is Dynamic Pricing and Why is it Important for B2B?
What is Dynamic Pricing?
Dynamic pricing, also referred to as real-time pricing, is a highly flexible way of setting the cost for a product or service.
What if, throughout the lifecycle of your product, you could charge different prices to different customers based on the different types of customers at different time periods?
Perhaps your product is new, and you want to maximize the value of each sale by charging as much as possible for the product in the first few months of its release?
After a few months, if you see sales leveling off, you may want to lower the price slightly to keep the sales volume and velocity consistent?
After that you could consider retargeting different customers with different prices based on your relationship with the company, the volume of products they want to buy etc.
The ability to have a flexible pricing strategy based on customer groups or/and time is the heart of dynamic pricing and with a basic dynamic pricing strategy you will be able to maximise your sales potential.
Dynamic pricing within the airline industry
Dynamic pricing is a well-established practice within the airline industry.
It has happened to us all, searching a last-minute deal for a weekend break and frantically trying to snag a cheap flight at a good price.
You may have found that ticket prices can vary from day to day, even from session to session. You may see a price for flight one day, that is totally different the next, or perhaps seen a price for a ticket increase in the same session. If this is the case, the airline is probably using dynamic pricing.
Simply put, when demand is high, airlines can charge more for their tickets.
Dynamic pricing in B2B
The B2C industry, as in the case with airlines, have a well-established track record of successfully using dynamic pricing strategies.
We know how Amazon have come to dominate the ecommerce market, and while there are several factors that have clearly contributed to their success, great user experience, excellent customer service the one overlooked factor Amazon have used to great effect is dynamic pricing.
Amazon embraced dynamic pricing early on by adjusting prices at the same pace of market demand. By doing so, they have remained highly competitive with the ability to deliver more appealing offers to their customers.
However, in B2B, dynamic pricing is not as common. There might be several reasons for this.
First, there is less price transparency on pricing. Prices are sometime open to negotiation depending on the customer’s size and the previous relationship the business has had with the customer.
Also, as we know purchasing decisions and processes in large companies are more complex than B2C.
While the purchasing decisions you make on behalf of a company, has to go through a set of structured routines and processes, your private purchases can at times be based on impulse.
So, if B2B purchasing processes are more defined, how could we think about implementing dynamic pricing in B2B and how can It be of benefit?
Well, there is an upside both on increasing prices as well as reducing them. Let´s say you buy a large volume of a product at a low price, undercutting competition to drive volume is a common way to set prices in the market. Through increased transparency on competing products, and even by being listed on marketplaces you can quickly use dynamic pricing to work out how low you can go to be more competitive while still making sure that you cover costs. The benefit of volume in B2B speaks for more use of undercutting competition when it can give you a volume boost, and help you increase profitability.
Second, Consumerization of IT shows how companies are exploiting B2C buying behavior in organizations by actively marketing and selling to individuals. They do this by going below the threshold of the structured processes. Through great user experience and clever marketing strategies, companies like Slack became the definition of consumerization of IT. The same psychology and tactics can be used by implementing dynamic pricing on a company level for customers.
Types of dynamic pricing
Dynamic pricing strategy can appear in a few forms. Each of them can be used for achieving different goals.
- Segmented pricing: This strategy offers different prices for different groups of customers. This means that the customers are divided into segments. For example, high-value customers can be offered higher prices. Here we can assume that they might value service, speed and quality above price.
- Time-based pricing: Companies can use this product pricing method when they want to charge more for providing some faster services. This means that you’re going to pay more if you want to have same-day service, or if you reached the company close to the end of the working hours.
- Changing market conditions: Markets can change due to a number of factors and businesses must act accordingly. If for some reason sales begin to fall, the company may go for the strategy of lowering prices.
- Peak pricing: This strategy is used by many industries to charge more during the peak hours.
- Penetration pricing: Penetration pricing strategy is used when businesses want to reach a large proportion of the market. Here, future customers can familiarize themselves with the offered product(s) and companies will set prices that are below the market standard and will, over time increase them gradually.
If you are interested in learning more about pricing and Ibexa Commerce why not contact us and talk to one of our experts for more on how Ibexa can deliver on your ecommerce requirements.