What are you risking with Dynamic and Personalised Pricing?

Date: 17th March 2014
Author: Deri Jones

Dynamic and personalised pricing is a hot topic at the moment.  Retailers are increasingly looking to adopt it across both physical stores and online. And it makes good sense: it enables them to change the price of goods and services at a moment’s notice to keep up with market changes and stay relevant – so when the weather turns hot and sunny, the price of bbq food and equipment goes up (as my credit card will testify after a trip to the supermarket last weekend!)

Dynamic pricing is also being personalised. This is where a website monitors things such as the customer’s location, equipment being used (such as an iPad), the time of day, the level of demand and competitor’s pricing.  It may also collect and analyse data on that particular customer to predict what they are willing to pay and adjust prices accordingly.

This is cutting edge stuff, but as the technology becomes more and more complex, so the risk of errors increases.

A few months back, a leading tools supplier offered thousands of product lines via its website at the uniform cost of £34.99; this included everything from a screw driver to a drive-on lawn mower.  Whilst the error was identified and sorted in a matter of hours, the result could have been ruinous.

Many retailers now state that there is no binding contract until an item has been shipped. This might have saved our retailer from having to honour a good proportion of sales since they can halt a transaction before an item is sent out for delivery. However, in the time between the problem starting and being rectified, some goods may have entered an automatic distribution cycle thus leaving the retailer highly exposed and vulnerable.

The implications are not just the financial loss, but the bad PR such an error can cause along with an increase in time-consuming enquiries to Call Centre staff.

To mitigate these risks, a number of our clients have incorporated a range of checks and balances to catch any pricing gremlins. Some run random journeys to check if prices are all the same, and if they are, it will check again and then issue an alert.  Others have journeys set to identify if prices are found to be below a certain value within a high cost category such as furniture, or if a price changes beyond say 30%.  Any such pricing irregularities trigger repeat tests and alerts.

By understanding where, when and how inventory problems occur, and their impact on customer actions, you can access valuable information that can then be used to improve sales, increase basket value, encourage customer advocacy and deepen loyal customer relationships.