Why dynamic pricing is not just "sale at scale"

November 29 2019

The living proof that dynamic pricing works – is Amazon. Amazon applies the "best price"-strategy by lowering prices against the competition for popular products. This pricing approach has made Amazon enormously successful and has provided the company with a huge market share.

Although this approach works for Amazon, this pricing strategy is less suitable for fashion brands and retailers since it can badly affect the brand's value perception. If products from a brand are marketed frequently for a low price, the brand reputation is impacted. This drastically reduces the willingness of the consumer to pay a premium price.

Nowadays, dynamic pricing is typically used by fashion retailers to "discount the collection at the end of the season". But is that a pricing strategy or simply the result of imperfect purchasing?

What dynamic pricing can bring for fashion brands

Consumers are more technologically savvy than ever and find the prices of comparable products within seconds. In addition, online superstores such as Amazon and Zalando raise the bar regards to delivery times and customer experience. As a result, consumers are very informed and more demanding.

Retailers should make use of the knowledge of their sales channels by:

having a better view of available stock
having a better understanding of the sales behaviour of customers.

By making this information available frequently, the retailer has powerful resources to determine the optimal price on a weekly or daily basis. As a result, supply and demand are better matched, so that drastic price reductions at the end of the season are limited to a minimum which in the end safeguards product margins.

Why RFID is key for powerful pricing analyses and operations

While it is easy to apply dynamic pricing in the online world today, it is still a challenge to execute dynamic pricing in the physical store. Typically, store staff use printed lists with short product descriptions to find and discount products. Due to the high turnover in staff, not every employee is experienced and able to find and recognize products quickly when using these lists.

Transforming the physical store into the digital world is therefore important. Not only to deliver a unique shopping experience to the consumer but also to make store operations more efficient, flexible and profitable. A fundamental step to initiate the digitalization of stores is to roll out RFID. By using an intuitive RFID solution such as iD Cloud, store staff has access to a powerful tool to perform store processes with high accuracy in less time.

Recent developments in the iD Cloud app help store staff to perform price changes. By showing a visual list of nearby products which needs to be adjusted, the process is contextualized and easily understandable so that any staff member can re-price fast, flexible and with fewer errors. Next to that, the app provides important suggestions to replenish products from the back of the house so that product availability is secured, and "unnecessary" markdowns are prevented.

The most fundamental benefit of RFID is that accurate stock data is secured. By having an EPCIS repository next to RFID, it becomes possible to have a centralized view of the stock of all physical stores and distribution centres in real-time. Therefore, pricing tools will always have the most accurate and recent stock data available, resulting in the best analyzes and decisions.

By making use of iD Cloud as an RFID solution, the first fundamental step is made to digitalize the brick-and-mortar store. The solution enables high-accurate store processes so that sophisticated pricing strategies can be created and executed in all sale channels – delivering a consistent and credible shopping experience for the customer.

Product Manager

Tjibbe van der Laan