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The Future Of Pricing In An Amazon World

0aaaGabriel Smith Pricefx
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With the increase of digitalization, the world changes more and more quickly, and pricing is a key battleground. And when I say that it changes more quickly, think in seconds or minutes, and millions of times a day. Amazon shifts product prices millions of times a day, an average product’s price can change every 10 minutes or so. With this pressure, retailers — both bricks and clicks — have been forced to jump into the deep end to compete with the help of pricing algorithms, dynamic pricing and other pricing solutions. 

The ability to update your prices, logic and rules based on changing market conditions is a key competitive advantage now and going forward. This is prevalent in retail and e-Commerce and I am seeing it majorly affect traditionally B2B markets. I get to see the transformation and evolution of pricing across industries — retail and e-Commerce is a perfect use case in the pricing revolution. Having dynamic and competitive pricing capabilities as well as the flexibility for retailers to make changes without depending on their IT organization is key to agility. As Salesforce’s Marc Benioff said, “Speed is the new currency of business.” In addition to being fast and flexible, what direction is pricing going and what can we do about it?

Here are four facets of the future of pricing and how they affect the e-Commerce world:

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Omnichannel Strategies

Channel disruption is accelerating, especially as customers interact with retailers and online merchants via web, mobile, apps, in store, store pick-ups, etc. To keep up with Amazon and other online competition, brands need to optimize and consistently apply pricing in this environment.

An omnichannel strategy keeps shops competitive, allowing them to cater to their buyer’s journey, identify their customers and how they search and buy across channels. Stores can then determine if they should optimize their prices and offers based on the channel. It is complex, thus increasing the need for a holistic pricing platform for managing it and integrating with these touch points.

Stores must also manage pricing in a way that does not create channel conflict. On Amazon, for the same item, sellers may serve varying prices based on the customer’s region, or the device they’re shopping on — and they’re doing this effectively. Shops must have to decide if this is the route they want to explore by using the attributes they know about their customer, based on historical shopping behavior, to calculate and estimate the customer’s willingness to pay. But in order to do this, they must act with caution and ultimately know the organization’s goals and align with this overall strategy. For example, a pricing strategy will vary greatly if a brand is trying to capture market share versus maximize profit or revenue. Some store’s goals are to capture share at the expense of profit to break into a category until they sell enough volume. A pricing strategy here will differ greatly from a retailer seeking a margin on each sale.

And, on that note, while shaping a pricing strategy, stores must always remember the code of contractual pricing if selling a partner’s goods. Stick to those prices, no matter the channel, especially if they want to keep partners happy, and make sure that if there are clauses that customers will get the lowest price, you are not violating them in other channels.

Customer Centricity

After understanding a customers’ buying journeys, it’s key to understand the value customers get from a store’s products and services, what alternatives exist in the market and how other offers compare. This combination of customer-centric pricing, using value and market-based principles is becoming the standard on which the future will be based. A data-driven approach, augmented with rules based on management insight is key to a differentiated and customer-centric pricing strategy.

Once a store has a better understanding of its customers, they can get a handle on their willingness to pay. However, that is not always easy to do for a smaller retailer. Think about the complexity of how Amazon understands the attributes of their customer when they enter an Amazon Go and how consumers are able to pay on their app and Amazon offers a specific price based on that person’s data. This is the way retail is going and retailers and e-Commerce will be forced to watch, or join in. Brands must find the right path of pricing for them, keeping the customer in mind, and serving the right price for each customer.

AI And Machine Learning

Machine learning and AI are changing the game in retail and pricing software is one of the areas where you can see real gains from the application of this technology. To compete effectively going forward, companies need the combination of AI and machine learning, with business rules to prescribe optimal prices into deals and transactions. 

You’re in the game if you’re using these technologies. If not, you’re not going to keep up. Machine learning and AI is about intelligence at speed, using that to execute on a selling strategy at the speed of today, which is in minutes. Imagine how much quicker prices will be determined in the future as the intelligence and sophistication of these machines and algorithms grow.

Integrated, Data-Driven Intelligence

Data-driven intelligence depends on data from multiple sources, both internal systems like digital commerce, ERP and CRM and external systems for competitive data, indexes and other leading indicators that retailers and e-Commerce stores factor into their pricing decisions. Integration is a core capability for effective pricing solutions and one where modern cloud-based solutions have a major advantage. 

E-Commerce and retail players that unify all their silos of customers achieve a competitive advantage. When consumers choose to interact, browse, shop, even read content from a brand, they expect to achieve a specific outcome. From buying a small pair of earrings to a kitchen appliance, or the investment in a family SUV — customers get the realization of the brand promise, keeping them coming to their front door buying more later.

To achieve this, retailers need an open architecture, which means that when new data comes in — i.e. a customer comes to shop online, browses through their iPad or scrolls through offers on the app — the brand is then able to use it intelligently. It gives a brand coordinated insight throughout all channels, organizations, suppliers and logistics providers, and these can be adapted at today’s speed — and the future’s speed — to fulfill a consumer’s need the moment it arises.


 

Gabriel Smith is the Chief Evangelist and Vice President of Innovation at Pricefx and has 19 years of experience in Quote to Cash, CPQ, Pricing, Promotions, Consulting, Product Management, Sales and General Management.

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