By Isabella Diez, Co-President
Consumers are accustomed to the price of gas and airline tickets changing daily, but now the prices of everyday items may be following suit.
The rising costs of production, labour, shipping, and product shortages, which are viewed as consequences of the pandemic, are forcing retailers to consider implementing dynamic pricing. This trend is evident not only in online retail but in brick-and-mortar businesses, as well.
Dynamic pricing is a strategy that uses variable prices as opposed to fixed prices. This is seen typically in gas and airline industries where prices are determined according to supply and demand.
Grocery and hardware store prices generally remain stable and price changes are not common. The continuing supply chain issues, however, are compelling companies to examine long-term solutions. In the current climate, many retail businesses feel they have no choice but to consider a move towards regularly adjusting their prices.
Chief economist with consulting firm RSM US, Joe Bruselas states that “finding alternative domestic suppliers and adopting dynamic pricing strategies will present firms embedded in the real economy with the best approaches to contend with rising prices and the shifting composition of supply and demand.”
A software company called Quicklizard Ltd. equips retailers with the means to automate their pricing strategy. The system is able to identify the ideal price point at which customers are willing to pay, in real time. With the 100 retailers they serve, 75% have increased how often they change their prices annually. One-third of retailers have changed their prices multiple times a day.
Retail giants such as Walmart Inc. and Amazon Inc. have been using dynamic pricing strategies for years. In order to remain competitive, they offer their products at low prices which can change daily. Sellers on Amazon are given the capability to update their prices, thousands of times per day. The majority of Amazon customers have reacted positively to this pricing strategy. Customers are able to view the price history of products on Amazon and this transparency is a value that has increased customer satisfaction.
For online retailers, this may be easier to implement but brick and mortar businesses will need to adapt to do the same. Many companies are using digital price tags to reduce the amount of time needed for employees to change price tags multiple times a week. But many businesses are wary of changing the prices of their products in fear that consumers will lose the business’s trust and loyalty.
How will the retail landscape navigate changing prices? Will consumers be able to accept a level of unpredictability as grocery stores change their prices daily?
Photo by Krzysztof Hepner on Unsplash