Pricing has always been an inexact science, but it’s becoming very scientific with Artificial Intelligence (AI) crunching big data numbers.
Retailers and Etailers are cautiously embracing personalized pricing strategies. In other words, two shoppers buying identical items can pay significantly different amounts. Why and how much difference are the two questions we hope to answer in this blog.
Personalized pricing happens every day online and in brick and mortar stores. For example, do you get discounts with a store membership card, use coupons, or get a freebie at your local restaurant because it’s your birthday?
When it comes to offering different prices to customers, usually there are two approaches, one is dynamic and the other is personalized. They’re both offering different prices to customers but how they’re being processed are different.
The Difference Between Dynamic and Personalized Pricing
Have you ever checked prices for a flight online, come back an hour later and see that the cost of the same flight has gone up?
These price fluctuations are a direct result of dynamic pricing strategies not customer-related. Prices fluctuate due to reasons like the day of the week, time of the day, competitor prices, or the available supply. Everyone shopping for that item, at that time, sees the same price.
Personalized pricing is just the opposite. The price is “individualized” to that shopper. Four different shoppers looking at the same item, at the same time can see four different prices. Each shopper’s history, demographics, and many other personal data come into play such as:
- The frequency of page visits
- Whether they access a site using a mobile or desktop device
- Personal demographics like Zip code, birthday, IP address, and other data
- Shopping history and loyalty programs
- Other products a shopper has searched and viewed
Personalized pricing if done correctly will increase a business’s profits significantly.
The goal is to sell at the highest price without upsetting or losing the customer. It’s the eCommerce’s version of “charge what the market will bear,” and it is no different than the pricing strategies merchants have used since the beginning of trade. Only, instead of sizing up a customer by the clothes he’s wearing or the number of camels in the caravan, merchants use far more sophisticated and personalized data.
A 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1 %. Improvements in price typically have three to four times the effect on profitability as proportionate increases in volume.
To begin personalizing prices, a retailer needs to segment customer traffic and treat each differently. For example, frequent visitors should get a “welcome back” preferential treatment over first-time visitors. There are six general segments of online retail shoppers.
- Type of Visitors – New or returning
- Traffic Source – PPC, organic or referral
- Geo Location and IP address – Language, country, city, weather, etc.
- Shopping Behavior – Number and frequency of visits, type of products viewed, etc.
- UTM (Urchin Tracking Module codes) Parameters – Identifies the type of link for campaign effectiveness.
- Device – Mobile, tablet or desktop
Each piece of data including cookies helps the retailer determine the best price for his or her profits while maximizing the number of people that will buy.
BigCommerce offers a tutorial about personalized marketing. Using their analytics and other tools simplifies creating buyer personas for individuals or groups. It is essential to segmenting and delivering the right price.
One pricing app that they offer is called WisePricer. It’s a real-time pricing solution that tracks your competitor’s prices and lets you know when adjustments are necessary.
One way BigCommerce has simplified personalizing prices is with “Price Lists.”
The Price Lists Feature in BigCommerce
BigCommerce offers a new level of control over pricing with their “Price Lists” feature. This is advantageous to companies running both B2B and B2C from the same website.
The merchant sets up groups such as B2C (retail), B2B (wholesale), or another designated group. The storefront remains the same but the price changes depending on which group that shopper belongs. You can set up multiple groups, pricing, and discounts from the various drop-down menus in the dashboard. It simplifies a complicated process of setting SKU-level discounts based on customer group.
It’s currently limited to Enterprise plans and requires a Stencil theme.
You Don’t Need That Many Personal Details
Because pricing is individualized doesn’t mean you must know everything about a customer before you can give them the price. For example, if fickle minded shoppers repeatedly return to their shopping carts without completing the purchase, offer a 10% coupon to seal the deal. It’s another form of personalization that moves the price closer to the optimum point where the buyer pulls the trigger.
You may have to test different pricing strategies for your business to see what works best. BigCommerce has the tools and analytics to test and segment all of your buyers. You can set up behavioral and on-site targeting, which are the foundation of any personalization pricing effort.
One risk of too much price fluctuations is that customers feel that retailers are taking unfair advantage of them by knowing too much about them. Approach any new pricing strategy slowly through testing.
The endless struggle of pricing is a battle between buyer and seller that has been waged since the beginning of trade. Merchants want the highest price, and the buyers want to spend as little as possible. Personalized pricing is the closest you can get to a happy medium.