Dynamic pricing everywhere

Dynamic pricing everywhere
Leonardo Hodgson, Proposition Manager at Cerillion, investigates the rise of dynamic pricing strategies in different markets and evaluates the potential risks for Communications Services Providers (CSPs).

It’s a fact: the old bricks-and-mortar version of commerce is struggling to keep pace with the powerful and constantly evolving world of online shopping. It is still quite hard to conceive that the traditional offline commerce, which has existed since the origins of humanity thousands of years ago, would face one of its most powerful rivals in the virtual world of the internet.

One of the key advantages that contributes to the superiority of e-commerce is the convenience of shopping at any time and from anywhere. However, as a recent report published by the marketing firm vibes indicates, despite the accessibility of online shopping, modern consumers still enjoy going to local shops to inspect, try and compare prices of their desired gadgets, shoes, toys and clothes, before then returning home and buying online at a lower price.

This growing trend of ‘showrooming’ has become much stronger through the use of smartphones which allow consumers to do real-time product and price comparisons whilst in-store. Equipped with tools such as the Amazon or Ebay mobile applications, consumers can gain access to the latest price information and product reviews at any time, providing them with a level of bargaining power that was never possible before.

A common tactic to convert this new generation into customers is to adopt a more pro-active engagement by using price matching against their competitors. For example, Bestbuy recently announced that it will include online shops in their price matching policy.

However, traditional high street retailers are also benefiting from new technology weapons like real-time analysis to provide more dynamic pricing strategies. Companies such as Mercent are already providing solutions that are able to give instantaneous pricing intelligence and help the retailer fight back. By compiling key information including product costs, stock levels and margins, and then analysing and comparing with other online and offline marketplace prices, shops can respond more quickly and adjust their prices with optimised promotions and offers.

Variable pricing has always been a key strategy in the online market, used for balancing supply and demand, and to maximise profit margins. Most people will have experienced this in the travel industry with things like hotel room rates and flight tickets subject to massive price variation depending on when you book. Sometimes you get the best price by booking early, but in other cases a last-minute reservation can provide the best deal when there is spare capacity. Amazon.com is another example with its so-called ‘robo-pricing’ algorithms that enable merchants to change their prices every 15 minutes based on sophisticated stock market trading technology.

In the mobile communications industry, flexible pricing is a basic capability of every charging and billing platform, with tariffs determined by a combination of parameters including day, time, service type, destination, and so on. However, offerings such as the MTN Zone service available in parts of Africa, where tariffs change according to the network capacity available, have shown what can be achieved when a more dynamic approach is taken to mobile pricing.
By employing real-time convergent charging (RTCC) systems, CSPs now have the opportunity to extend this innovation even further into other new digital segments such as M2M, 4G/LTE, Wi-Fi, VoIP and OTT services, using real-time network and service delivery information to incentivise and reward usage.

But as with any powerful weapon, dynamic pricing strategies must be used with extreme caution due to the potential commercial impacts and possible conflicts between promotions. There are many reported cases where the process of unveiling new online promotions went terribly wrong, causing significant losses for companies and service providers alike. For example, the recent error by Alitalia which resulted in free flights being offered with a special promotional code, or the anomalies that allow undesired ‘mega-promotions’ at supermarkets such as this recent glitch on a wine promotion at Tesco in the UK.

The ease of sharing these unintentional offers through social media means that mistakes are amplified and the impacts can be sudden and extreme. Put this in context of a mobile operator with millions of subscribers, each equipped with an ‘always-on’ device, and the result of pricing errors could be catastrophic. Whilst dynamic models represent the future of pricing, CSPs going into this area must do so with their eyes wide open and the appropriate assurance and monitoring systems in place to minimise the potential consequences.