Whether establishing an eCommerce storefront or adopting a multichannel marketing approach, having a strategic pricing strategy is key to ensuring your online success.
However, for modern-day eCommerce businesses, choosing the right pricing strategy for your products means much more than simply knowing the margins you want to make and listing an appropriate price point. There are several considerations to make when pricing your products across multiple marketplace platforms, including competitor saturation, promotional seasonality, product demand shifts, and advertising conversion rates and spend. These variables often lead business owners to wonder whether they should rely on more fixed or fluid pricing models.
In this article, we'll discuss the pros and cons of static and dynamic marketplace pricing policies and how you can decide what is right for your business.
While both static and dynamic pricing models have their own pros and cons, with the right visibility and control, both options can be sustainable long-term.
Understanding the Difference Between Static and Dynamic Pricing
Most eCommerce platforms and third-party marketplaces offer retailers options when it comes to how they price their products. Typically, online sellers will have two main options when establishing price points on their listings - static or dynamic.
What is static pricing?
Static pricing, also known as fixed pricing, is a price point manually set by a reseller that won't change. While these price points can be changed at any time with manual intervention, product listings utilizing static pricing rules will not be subject to change based on competitor offerings, inventory availability, or other changing market conditions.
What is dynamic pricing?
Dynamic pricing, also known as intelligent pricing, is a feature offered on many eCommerce platforms and marketplaces that allows a hands-off approach to pricing management. Dynamic pricing models allow resellers to set predefined rules associated with margin expectations pricing caps to keep listing price points fluid with changing market conditions. Using these dynamic pricing models, listing prices will update automatically without any manual intervention needed on behalf of the reseller.
Advantages of Static Pricing
When establishing a brand, static pricing is often preferred over dynamic pricing models. Using a static pricing model on your own eCommerce portal or across multiple marketplaces provides certain assurances when establishing product values and profitability minimums. Moreover, when deploying a smaller group of products throughout a handful of channels, price points are easy to list and modify as needed with minor productivity disruptions.
Another benefit of static pricing has to do with your product forecasting capabilities. Maintaining fixed pricing throughout the year allows you to benchmark the performance of your products through different times of the season, giving you more predictable historical patterns to forecast against when planning inventory availability and financial support.
Disadvantages of Static Pricing
While many online resellers are attracted to the level of control that static pricing provides, it doesn't come without its disadvantages. Static pricing models don't account for fluctuations in fulfillment costs, shipping locations, or seasonal demand. This makes it imperative that resellers build additional buffers into their pricing models to account for these shifts. Unfortunately, playing the worst-case scenario when it comes to established prices can leave you losing out on potential sales even though your margins could argue reducing your cost.
Limited-time promotions and general pricing updates can be a much riskier process when using static pricing models. While some eCommerce platforms will allow you to schedule specific price changes, there is an increased danger of user-entry errors that can leave resellers setting their prices too low when updating their listings. This can lead to incredibly costly mistakes selling products below cost or cause poor website and product reviews as mass orders need to be canceled with customers.
Advantages of Dynamic Pricing
Dynamic pricing models are becoming more and more preferred by multichannel resellers, as they allow businesses the ability to optimize and automate their pricing strategies across multiple listings and marketplaces. Also known as rule-based or intelligent pricing, dynamic pricing allows retailers to establish predefined variables to their pricing structure that reacts to real-time conditions on the eCommerce platform. This eliminates the need for manual intervention when updating price points for higher conversion rates or to match competitor pricing.
When selling products on mass-merchant marketplaces, the chances of selling the same or similar product is much higher than when selling products on your own eCommerce platform. When sharing the same product listing with multiple sellers, dynamic pricing tools like Amazon Repricer can ensure you maintain a competitive edge by always guaranteeing you have the lowest in the channel, even when you're not actively monitoring the listing. More than that, however, dynamic pricing allows you to respond to changing market conditions. As supply and demand shifts and inventory levels begin to reduce, dynamic pricing models can increase the asking price for products, maximize profits, and reduce manual entry errors.
Disadvantages of Dynamic Pricing
Regardless of what type of business automation you choose to introduce into your company, it's important to approach your implementation strategy with the right balance. As with all types of automation, dynamic pricing can have some disadvantages if not properly configured or used in the right retail setting. For example, if your dynamic pricing model is configured to update pricing in real-time or several times throughout the day, it can cause confusion and disappointment for your customers. Prices that change too often can lead to a higher return rate or regular post-purchase inquiries from customers to match pricing and offer refunds.
Another point of consideration for resellers looking into a dynamic pricing model is vendor repricing policies. When sourcing your products through manufacturers or distributors, it's likely that they have very specific policies associated with how resellers can price their products on online marketplaces. Depending on the agreements you have in place, dynamic pricing models could lead to a breach in MAP (Minimum Advertised Pricing) policies and can potentially damage your supplier relationships. Online businesses should ensure they have complete control of their eCommerce listing prices before deciding whether a dynamic or static pricing model is best for them.
Choosing the Right Pricing Strategy
Deciding on which pricing strategy is right for you depends on the variables of your business. While both static and dynamic pricing strategies have their own pros and cons, what matters most is that you choose a sustainable approach that supports your multichannel selling strategy.
Regardless of what pricing model you choose to adopt, however, it's vital that you maintain complete transparency and control over all of your listings as you begin to expand channels and assortments. One way to do this is using a multichannel listing platform that gives you all the tools you need to customize your product data across multiple platforms, all in one place.
Whether adopting a static or dynamic pricing model, StoreAutomator simplifies the process of implementing your pricing strategy across your entire eCommerce ecosystem. For more information on how you can streamline your listing management and get the visibility and control you need across all of your online channels, get a free demo of StoreAutomator today.