The COVID-19 pandemic has thrown the business world off its axis. The virus has disrupted global productivity, manufacturing, and service activities, as well as supply chains. How to manage dynamic pricing in COVID-19?
With the primary services that form the backbone of the business world out of commission, how do you do business during the crisis? This is especially true if your company has begun using dynamic pricing.
In the pre-pandemic days, many e-commerce firms successfully used dynamic pricing models. Whether in travel, retail, or entertainment, services or products were sold online at different prices to different groups of people, often at different times.
But the pandemic has raised some legal and ethical questions over the practice, and even on the efficacy of this form of “differential pricing”.
Express Analytics puts the voice of the customer at the heart of the business. If you are a traditional retailer anywhere in the world, you need to speak to our experts to get a lowdown on how dynamic pricing can help you.
How to Adjust Your Business Strategy
This blog post will not address the legal and ethical issues associated with this form of pricing during a crisis. Suffice to say that trying to maximize your short-term profits by hiking the price of some crisis products in an emergency is illegal in most countries. An example would be the sudden hike in the cost of medical masks or hand sanitizers.
What we will examine in this post, though, are pricing and sales considerations that companies face today following the disruptions in the demand and supply chains.
Trying to get dynamic pricing right, even before COVID-19, was a challenge for many online retailers and service providers. That was because of extreme competition.
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Monitoring the prices of hundreds of products and measuring them against the competition required sophisticated algorithm-based software, like the one we offer at Express Analytics. With the uncertainties of COVID-19, this has gotten even tougher.
So, should your business discard dynamic pricing completely during this time of crisis? No. Instead, what your pricing model today must consider is the following:
- Changes in regulations
- Supply chain issues
- Inventory levels
- Real-time demand for products or services
Before we go on, here is a recap of dynamic pricing.
What Is Dynamic Pricing And How Does It Work?
Dynamic pricing tools consider a combination of historical and real-time market data to provide price suggestions. The data can range from past performance to geography to seasons or even local events.
The algorithm frequently adjusts rates based on such data inputs, helping companies stay competitive at all times. Such pricing can be based on a group of people or on the passage of time.
Effectual-Response Model During COVID-19
The pandemic poses a challenge to a company’s product portfolio, whether it is offering a service or a product. It’s a new, short-term market environment, and your Sales team needs to be quickly sensitized to it.
However, even while catering to the short-term, sales must not lose sight of its long-term goals; it’s like walking a tightrope.
The mantra should be “Adapt, adapt, adapt.” The Sales team needs to adjust to today’s market conditions. Product inventory has to be adjusted accordingly, and even the algorithm-fuelled dynamic pricing model needs to be monitored and tweaked to suit market conditions.
Here’s what a recent McKinsey report had to say on pricing in the pandemic,
“…you need to create ‘flex’ in pricing.The outperformers in today’s environment will address customers’ short-term pain points without needlessly destroying long-term value. For many, this will mean providing short-term pricing or volume relief.”
“Rather than lock in long-term, highly discounted arrangements that might impact the business in the recovery, they will explore ways to bundle offerings, offer one-time promotions, flexible payment terms, credit for future purchases, or other techniques that align the offer or pricing architecture to near-term needs while providing flexibility for the future.”
KPMG issued this advisory:
In this situation, it is paramount to maintain discounting discipline to avoid the downward price spiral that happens when companies start chasing sales. Instead of reflexively cutting price, focus the customer conversation on the total value package of your product. Consider flexible terms and conditions, generous return policies, or including additional services to increase your total value proposition.”
At the core of implementing flexible pricing during COVID-19 is the changing consumer requirements. That forces your company to recalibrate its product portfolio. So, during the COVID-19 pandemic, you need to implement an “effectual-response” model.
Implementations of Effectual-Response Models
Here are some examples of dynamic pricing models: For companies in travel, tourism, or hospitality, there was a sudden, “catastrophic” drop in short-term demand.
After a few months of despair, with some aid from their respective governments, a few airlines took advantage of the “travel bubble” concept to restart operations and have a different pricing mechanism.
Travel bubbles are exclusive travel corridors set up between countries that have successfully tackled the coronavirus.
In other sectors, such as telecommunications, there was a sudden spurt in demand for services, reflected in increased data traffic, so a telco must know how to handle this rush in pricing.
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Here’s one way to get the most out of pricing during COVID-19 — monitor real-time sales performance. With supply chains badly hit and consumers’ demands fluctuating as the pandemic unfolds, two things are of the utmost importance.
These are continuous monitoring and forecasting of the daily sales performance and the supply chain pipeline. The right products or services can be prioritized based on their daily performance across categories, points of sales, and channels, including customer feedback.
Such daily monitoring will help you build the “effectual-response model” using accurate market signals to identify relevant data points and avoid panic-driven pricing, ensuring your prices are in sync with current market conditions.
However, you also want to avoid automatic surges in product prices due to demand mismatches. The resulting feast-and-famine pattern is too volatile to forecast or budget for.
You need to keep a continuous eye on the market and your own pricing algorithm. Failing to do so may mean losing customers in the short and long term.
Above all, ensure that your pricing actions are legal and ethical at all times.
