Price parity v dynamic pricing
08/11/2022 - Price optimization
When pricing on different sales channels, you can choose either a price parity or dynamic pricing strategy depending on your objectives. Dynamic pricing involves changing prices to suit each sales channel’s specific supply and demand. For example, you can opt for lower prices on Amazon because competition within the marketplace is fiercer. On the other hand, a price parity strategy involves maintaining the same price on all channels: e-commerce sites, marketplaces, and distributors. Each model has its pros and cons. Your choice will depend on the type of business, its needs and audience. We explain the main features of each.
A price parity strategy strengthens customer confidence
Price parity is useful to boost customer engagement and the brand image, especially for consumers with greater price sensitivity. For these consumers, checking that the company offers the same prices for its products on different sales channels tends to speed up the final purchase decision. Likewise, price parity portrays the perception that the articles are of high quality, drawing users closer to the brand. For these reasons, it is often the tactic of choice for companies seeking to build a solid customer base.
Among its drawbacks, it is worth noting that an effective price parity strategy must include all distributors and resellers, whether they are online or in-store. Higher prices on other sales channels can impact the corporate image. To avoid this, you can create a MAP pricing policy or minimum agreed selling prices between manufacturers and sellers. This will work best if there is good communication and coordination between all those involved.
Dynamic pricing boosts customer acquisition
On the other hand, dynamic pricing offers different prices depending on the sales platform and the moment in which the market finds itself. It has a greater potential to attract new customers and increase the conversion rate. These changes make pricing more competitive and can be tailored to what customers expect from each channel. This means you can apply lower prices to sales channels with more price-sensitive users, to ensure you attract them. If price changes are made in line with the competition’s movements, gradually outmanoeuvring them will be easier. It is advisable to be aware of competitors’ prices to have a benchmark against which you can set your own prices.
Traditionally, dynamic pricing has been linked to transport and tourism, for example, flight prices. However, it is already being used by e-commerce businesses in different sectors. It is mainly used by companies looking to increase sales over the short to medium term, although this may reduce customer loyalty. In this case, you must invest maximum effort in getting to know your customers well. You must know their perception of your products and services’ value and how they react to your prices.
From Reactev, we recommend analysing your product catalogue and sales volume and to determine which strategy will be the best fit for your e-commerce business. From then on, in both cases, the most important thing is to optimise prices and adapt them to changes in supply and demand. Advanced price optimisation software will evaluate which prices you can raise or lower to boost sales, optimising the profit margin.
Category: Price optimization
