Real-Time Competitor Response Planning

Major retailers have made substantial gains through real-time competitive response systems. As far back as 2013, Amazon was estimated to make over 2.5 million price changes every day; the present-day figure is far higher. Amazon has sustained roughly 20% annual revenue growth rate for many years, in part due to its dynamic pricing approach.

Consulting firm McKinsey says it has helped clients improve revenue by 2-5% and profit margin 5-10% through dynamic pricing, including competitive analysis. In a pilot for a European retailer, McKinsey says it scored each item from 0 to 100 by analyzing such data as shipping costs, return rates, search volume, number of competitors offering the product and competitor pricing. That enabled the retailer to identify which SKUs to price for margin and which ones to meet competitive pressure. The result: a 4.7% increase in earnings in the pilot categories.

In another case, a large retailer that implemented dynamic pricing found that it reduced its inventory holding costs by 9.6%.

Many online sellers recognize the importance of dynamic pricing systems. A recent survey found 21% of ecommerce companies are already pricing dynamically, another 15% planning to do so and 27% evaluating the technology. Organizations report that implementation frees analytical resources, with pricing analysts saving 20-40 hours per week. While dynamic pricing means online prices can change frequently, studies show that 70% of consumers are comfortable with such price fluctuations, provided they are perceived as fair.