Personalized Pricing: Dynamic Pricing at the Point of Sale

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Personalization has slowly become the norm in a variety of industries. Advances in manufacturing, real-time customer service, recommendation engines, and other developments across the supply chain have set high expectations of personalized products and services for customers. Now, advances in analytics Paths to personalized pricing 2 and pricing algorithms are making it possible for companies to deliver personalized pricing to their customers as well.

In coming years, personalized pricing could become more common. It holds the potential to build customer loyalty, increase revenues, and give companies both more control over the price that different customers pay and the ability to base prices on a Related forecasts 10 variety of contextual data points.

It may also help retailers’ brick-and-mortar stores compete more effectively against online competitors: according to NPD Group, price is the single most influential factor in deciding where to shop among 85% of
Internet users.

KEY FINDINGS

  • Personalized pricing strategies are being explored in online and physical retail settings.
  • It is possible to personalize prices based on variables including location, purchase history, and social graph.
  • Personalized pricing could disrupt traditional pricing strategies and holds both promise—and potential pitfalls— for companies exploring its use.

BUSINESS IMPLICATIONS

  • Personalized pricing—This is already a reality for some brick-and- mortar retailers, and competitors will need to either adopt similar approaches, or develop new strategies to remain competitive and appeal to shoppers. With increased use of price comparison apps, showrooming, and other technology-driven shopping behaviors, one option is for merchants to develop experience-driven retail environments, equipping staff with tools to make them more helpful, and to renew their overall focus on customer service outside of pricing.
  • Coupon-cutters—No one balks at coupon-cutters getting discounts because they have gone to some effort to get savings, but personalized pricing “feels” different because it is based on a person’s consumer profile—which can be compiled based on purchase history, location, and other criteria that consumers can’t easily see or make sense of at the point of purchase. When all of these factors are pieced together, personalized pricing appears to confer benefits on people because of who they are—not what they did to earn the savings (e.g., coupon-cutting), and therein lies some of the reason that a line of “fairness” seems to be crossed. Firms need to investigate ways to make the criteria for personalized pricing more transparent while protecting privacy and protecting against people trying to abuse the system.
  • Virtual loyalty—Manufacturers and retailers also need to look into new methods of delivering on “virtual” loyalty, for example, finding ways to reward customers who interact with them on social media, give them favorable online reviews, or spread the word about new products offline. Customers may increasingly expect tangible rewards for performing these often-virtual actions that have a real influence on how others perceive the brand.
  • Goodbye to Big Brother—Customers could grow impatient with “big brother” brands that seem to know too much about their purchase habits. While big data unlocks new potential revenue sources for businesses, the creepiness factor could leave shoppers uncomfortable and drive them to take their business elsewhere. This is an emerging facet of the brand-consumer relationship that companies need to actively track and understand, and brands will need to strike a delicate balance between adding value and going too far in their personalization programs.
  • Online mentality—Brick-and-mortar businesses will have to start thinking more like online merchants, and will have to become more agile in rolling out personalized pricing techniques while also educating customers on the benefits of these new programs. Businesses will also need to find ways to connect a customer’s online shopping behaviors with offline shopping behaviors. While online retailers can easily provide recommendations and dynamic prices based on browser cookies, brick-and-mortar retailers looking to compete with a growing e-commerce sector will need to find innovative ways to deliver the same kind of customer support in physical retail settings and effectively bridge the digital and real-world divide.

FOR MORE INFORMATION

To read this entire brief — and to learn more about the trends and forecasts in this report and what they mean for your organization — contact michael@futureinfocus.com.