Dynamic pricing according to product demand

good or bad idea?

[Essex_boy]

Try this artice.
[ecommercetimes.com...]

I think it would be a good idea, providing it wasnt abused, like most things.

[edit_g]

Travel sites have been doing this since day 0. But people expect price fluctuations on a travel site.

Like they say in the article:

"If I go on Best Buy's site and buy an MP3 player for $100, I don't want to go on the site the next day and see it for $80,"

[rogerd]

Even split-run pricing tests have been controversial. (Testing two different prices to different customers.) Inevitably, somebody spots the discrepancy and raises a fuss.

I do think dynamic pricing could be used in a "Daily Special" situation, or something like Amazon's Gold Box. As long as people realize that it's a price that could change in some defined time frame, they shouldn't get too mad. OTOH, I've often spent a day or two shopping, comparing prices, checking reviews, etc. before buying something - I'd be really unhappy if I went back to place an order and found that my price had gone up 10%. This could happen without dynamic pricing, of course, but is far less likely.

[bakedjake]

Dynamic pricing according to product demand

This is essentially what eBay is, is it not? To me, what the article is proposing is very similar to eBay. eBay just makes it legitimate by calling it an "auction", so no one can gripe about 60% price differences.

It seems that eBay Stores almost takes the idea proposed by the article to the next level - let the market determine what the market will pay.

[edit_g]

let the market determine what the market will pay

But this is according to demand - demand for the product (or which there are many). Letting the market determine is fine for auctions (ebay) because the item is Unique - but I'm not sure how well it works for new products from manufacturers, like mp3 players etc.

[bakedjake]

but I'm not sure how well it works for new products from manufacturers, like mp3 players etc

I'm not sure if we can link in this forum, but do an eBay search on "new apple ipod". The problem, of course, is that most people do not yet think of eBay for new product. Also, eBay is a hassle to use for people that want product now.

BTW - PC Parts retailers are already doing what the article suggests, manually. With the advent of PriceWatch, most competitive shops change their prices multiple times daily.

[John_Shaw]

It really depends on what the consumer expects from a site or store. On an auction site like e-bay, one expects market fluctuations in the price. In a resturant, if an item (typically fresh fish) is marked "Market Price" and the waiter tells you the price that day, you expect it to change. The same applies to items clearly marked as special pricing or daily special, etc.

However, in general one does not expect listed prices to change and many customers would be offended and refuse to buy from you again.

[rogerd]

I think the vast majority of online shoppers expect fairly constant pricing from stores, much as they do from brick & mortar retailers. "Regular" prices don't change often, and sales usually have defined end dates.

Certainly, dynamic pricing could be fine if the site presented it as such. Auctions are market-based, and Amazon's "Gold Box" gives you one chance at a particular price. I think if a site makes its pricing policy clear, like "Buy Now - Prices Change Every Hour!", shoppers will accept dynamic pricing with no problems.

[cfx211]

Amazon had a big flap a couple of years ago when they tested dynamic pricing. They tried charging loyal customers more for items because they had already formed a relationship with Amazon and were more likely to buy than someone who had never purchased from them.

Needless to say once wind of this got out, there was a big stink and Amazon stopped doing it.

[wingslevel]

A lot of this all depends on how elastic the demand is for the particular product.

A few years ago, when I had launched an e-comm site that wasn't doing so well, I reduced all prices to my cost. I was getting plenty of traffic. After 2 weeks, I realized that my sales were just about the same as before the price drop. Of course I put my margin right back in - plus another 5% - and sales have grown ever since.

[Hawkgirl]

More commentary on this topic in an AP news story [story.news.yahoo.com].

This article quotes a fellow from the University of Minnesota's Digital Technology Center with a bit of a doomsday scenario in his head ...

...the economy could suffer if technology helps suppliers engage in price discrimination against producers of important goods and services.

"Say you're running an oil well and you've had a brilliant insight into how you can pump more of the oil," Odlyzko said. "Suppose that guy who runs the pipeline suddenly jacks up your rates, because he says, 'Here is a guy who can pay more!' Well, that suddenly decreases your motivation to innovate."

I'm not sure I buy it, but it's an interesting thought.

[pbreit]

It may conform to supply and demand principles but it's generally not a good idea for consumer products as it tends to irritate customers.

[francesca]

If I were a customer, this will really disapoint me if I found out that I paid a higher price than the other customers.

This might also result a lot of returned purchases from customers who paid higher prices.