Unquestionably, dynamic pricing increases revenues and profit margins. Our customers can expect to see a 30% increase in revenues and a 10% increase in profits. At the same time, however, dynamic pricing can erode trust between a brand and consumer. Consumers who see fluctuating prices every time they visit a webpage are prone to wonder why a camera that cost $119 two weeks ago costs $135 today.
There are generally two different concerns consumers have when it comes to dynamic pricing. First, they question whether they can trust the retailer. Second, they have privacy concerns, as they don’t know what criteria is being used to determine a price.
For retailers, these concerns often prevent them from adopting dynamic pricing. Despite the bottom-line benefits, they are hesitant to make a move that could alienate customers. Unfortunately, that leaves retailers in a weakened position, in the heavily contested retail space.
Building Trustworthiness in Your Customer’s Eyes
Trust is an important commodity in the consumer-retailer relationship. Trust leads to loyal customers, repeat business, and long-term profits. It’s important to be forthcoming about prices to your customers. If they think every navigational click from one screen to the next will introduce price changes, their next click will be off your site.
Explain that your site uses dynamic pricing to determine price points. When customers understand that prices go up and down due to competitor prices, inventory levels, and demand, they realize that your site is simply responding to market forces. Consider adding a statement like this to your website.
In an effort to remain competitive, the prices on our site reflect real-time prices in the market. This may mean that an item you are looking at today will have a different price the next time you visit.
Your customers will appreciate the honest communication about pricing, and you’ll maintain the trustworthy status in their eyes.
Customer Privacy Concerns
Consumers are concerned about the way businesses use their personal information, and when confronted by the fact that pricing is influenced by their own behavior, it could cause consumers to shop elsewhere.
The key to alleviating this pressure point is communication with customers. Web sites should let consumers know that certain actions, such as registering as a user on the page or a loyalty program membership, could result in pricing advantages. While these aren’t the only factors that influence price, it lets the consumer know that dynamic pricing isn’t always about raising prices, and that there are multiple considerations involved.
Making Consumers Feel Good About Dynamic Pricing
Ultimately, consumers are worried that dynamic pricing always means paying higher prices. In reality, it means paying market prices, which can fluctuate based on demand, season, and competition, and will often times lead to lower, rather than higher, prices. Staying transparent with your customers about pricing ensures that they don’t feel taken advantage of.