The case for intelligent automated pricing

From dynamic catalogue management to competitive analysis and successful pricing—an ecommerce site relies on a number of critical business processes. When these elements work well in tandem the potential for competitive advantage is huge. But when they don’t, a business can find itself in big trouble.

Linking all these processes, then, is of fundamental importance. What’s more, these processes need to be dynamic, able to predict and react quickly to changing market conditions, customer preferences and competitor strategy.

Understanding the competitive position

Central to day-to-day success for online merchants is the ability to maintain an up-to-the-minute view on competitor pricing and apply that dynamically to their own price levels as quickly and accurately as possible. The Holy Grail of competitor price comparison is to achieve this automatically and without human intervention.

Popular methods of collecting such data generally result in the production of disparate data sets, often housed outside of the core management systems in spreadsheets or marketing reports, which cannot be easily integrated with whatever pricing mechanisms are in place for the website.

While some steps have been made in the development of scraping technology to gather comparative pricing data from other websites, integrating and applying those data presents an ongoing challenge to most online merchants. All too often the response has been to allocate more and more human resources to analyse data sets and then integrate that analysis into pricing. Yet, as we all know, this is one of the most expensive approaches to any business challenge and something that is not sustainable for most organisations.

The net result of these circumstances is a yawning gap between what online marketers would like to achieve and what they have been capable of doing. Behind the user-friendly design and slick branding, most online merchants are running just to stand still.

The answer to this critical business challenge lies in effective, accurate and dynamic automation. By enabling much greater levels of automation, not just in the collection of competitor price information but in its application to the merchants’ own price levels, it becomes possible to react more quickly and more frequently to changing market conditions.

Price and stock-availability levels can vary dramatically in any fast-moving commodity market. The ability to react quickly to changing circumstances can be the difference between making and losing sales in large volumes.

The price is right

Clearly, when an online retailer has meaningful insight into the competitive landscape, one of the biggest payoffs comes in optimising its pricing levels. This doesn’t just mean being the cheapest; it means identify and setting the best pricing for margins based on market conditions.

Automated pricing is a common ecommerce goal. Anyone with a basic understanding of Excel or with some database know-how can build an automated “cost plus” pricing algorithm, to bolt onto margin. Taking the model from there is where the challenge really starts and where most online retailers stop. But using a cost-plus algorithm to automatically price a catalogue does not consider competitive positioning – and that leaves huge holes in any pricing policy. Not only might a company find itself undersold on a heavily promoted product, but a lack of competitive price analysis can leave margin on the table and inadvertently allow prices to be set below the market average.

Allowing large parts of a website’s product catalogue to be automatically priced and published means that core product sets can be given more and fuller attention by the product managers. The most profitable areas of the business can be given the attention they require.

Merchants should never set or sell a product for less than a price that is acceptable – yet they do. How many businesses are caught out selling products at a loss, either because low-priced supplies have run out and been replaced by a more expensive resource or because prices have not been updated by overstretched merchandising teams?

In a sales environment as dynamic as the internet, with all the technical advantages that it can offer, some inescapable and fundamental business issues continue to hold retailers back. By reexamining what it really means to be a dynamic online retailer, and if necessary investing in the technology to become truly dynamic, businesses can move to the next level of success.

Steve Willock is managing director of Total Commerce Management, the provider of the Intoscape integrated ecommerce platform.