4 Common Dynamic Pricing Myths Debunked

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With US inflation rates continuing to hold around 8.2%, consumers are becoming increasingly price sensitive. In fact, 45% of consumers are spending more time planning their shopping trips in advance to avoid overspending.  As a result, retailers are struggling to find the balance between helping shoppers fill their carts and discounting too deeply to uphold profitable margins. To make matters worse, this balance changes every day based on the supply and demand of each individual product. In addition, other issues like supply chain delays and growing industry competition are on the retailer’s mind, making pricing strategies difficult to manage manually. Dynamic pricing can help, providing individualized pricing recommendations that are most likely to optimize the balance between affordable for customers and profitable for retailers. 

With so much at stake, why aren’t more retailers relying on dynamic pricing? Some retailers are hesitant to implement this AI-driven solution because they misunderstand the technology and how it impacts the retailer’s control and the customer’s shopping experience. 

There are four main myths surrounding dynamic pricing — all of which can be debunked. Let’s dive in. 

Prices change too frequently

A common misconception about dynamic pricing is that the number of daily price changes is very high. With consumers becoming increasingly price sensitive, retailers are concerned about how this fluctuation will impact customer sentiment and loyalty. 

While the concern is valid, a good dynamic pricing solution will not change prices too frequently.  Some fluctuation will be necessary in today’s competitive market, but the number of automated price changes can be adjusted based on the retailer’s preferences. These price changes can be used strategically for items that need to be sold by a certain date to avoid generating waste, or the changes can be applied to items in short supply due to supply chain challenges. 

When implementing dynamic pricing, it is recommended that retailers change prices at the same frequency as before they turned to the AI solution. This gives retailers the space to focus on the automated strategy and how it impacts the customer’s price perceptions. Frequency can then be adjusted based on the customer’s reaction and the retailer’s goals. 

Electronic shelf labels are required for brick-and-mortar dynamic pricing

Many retailers make the mistake of associating dynamic pricing with electronic shelf labels (ESLs). While ESLs are beneficial, they are not an exclusion criterion. Retailers can also use dynamic pricing for manual price changes handled by the staff. 

For example, if a retailer uses dynamic pricing to manage the same frequency of price changes as they did before implementing AI, only the outcome will change. With dynamic pricing, the manual effort required for staff-led pricing changes will be optimized to create the best value for retailers. 

Consumers will think prices are always rising

A common consumer misconception with dynamic pricing is that the technology will only raise prices. Overall, there is a balance between prices going up and down based on strategic objectives of the retailer, market orientation, and competition. 

To avoid this misconception, retailers will need to communicate the purpose for dynamic pricing and its realistic impacts on the customer journey. This includes explaining to shoppers that agile pricing is critical to a retailer’s survival today. Retailers can communicate this information via their website or customer newsletters. 

Dynamic pricing creates a black box

Oftentimes a retailer’s top concern with dynamic pricing is a perceived lack of control surrounding pricing decisions. However, with an agile solution, retailers can choose whether to automate the entire pricing process or have intervention touchpoints managed by a retail executive. 

While there are some solutions on the market that limit retailer control — in that retailers will have to ask the vendor for changes in pricing strategy — other solutions allow pricing managers to maintain strategic control throughout the entire process. Pricing managers can set parameters that require approval for pricing changes, or they can simply monitor the changes via the solution’s dashboard and interfere as needed. A good dynamic pricing solution will give pricing managers the tools they need to optimize these changes in a way that makes them feel most comfortable. 

Turn to dynamic pricing to withstand inflation

In short: dynamic pricing doesn’t have to be intimidating for retailers or consumers — and it doesn’t have to limit a retailer’s control. When implemented correctly, with the right solution provider and the right team, dynamic pricing can provide relief for retailers struggling to keep up with rising costs. During a time in which every dollar matters, retailers should consider investing in dynamic pricing now. 

Michael Jaszczyk is CEO of GK, America.