September 24, 2020 | GK AIR Knowhow Pricing
8 min read

5 Ways Dynamic Pricing Can Help the Consumer Electronics Industry Succeed

While my last dynamic pricing blog dealt with industry-specific features of dynamic price optimization in the fashion industry, today we’ll look at consumer electronics. The consumer electronics industry is one of the most challenging industries I have encountered in the dynamic pricing project business so far. This is, because it turns faster than most other industries and is also driven by one of the strongest competitive dynamics of all. In order to survive as a retailer here, dynamic price optimization using AI software is essential. This is how you ensure your profitability and simultaneously establish yourself as a global competitor. In this blog post I have worked out the 5 most important success drivers that can be achieved with dynamic pricing.

  • Clean and detailed product master data

    High data quality is the fundamental basis for successfully digitizing and automating processes. For dynamic price optimization, the quality of product master data is crucial. The cleaner and more detailed the data is, the more successfully a pricing software functions, and the more diverse the possible business cases become. For example, if product master data contains attributes such as brand, color or model of an item, you can easily price entire product families intelligently and dynamically with the help of a pricing software.
    When it comes to dynamically pricing longtailers, or slow-moving items, the process becomes easier when the number of product attributes that are stored in the master data increases. For this purpose, the attributes of all articles are analyzed and corresponding price groups are formed. Then the longtail products are assigned to these price groups based on their attributes. Thereby the initial price level is determined for these articles and the further price optimization can follow.

  • Calculate price elasticities for each product

    For the consumer electronics industry, it is particularly important to be able to calculate price elasticities at the product level at least daily. In addition to pricing decisions, these can also be used for advertising. In both cases, the demand for a product highly influences any decision. In the consumer electronics sector, margins are often very low, so many product prices do not have much room to fluctuate – especially when measured against competitors. Here, price elasticity can be used to identify products that are less in the perception of consumers. That means, that customers hardly react to price changes (even to uplifts) of these products and that is why they are also less relevant to competition. The pricing software then prices these products based on gross profit margins, ensuring your profitability and competitiveness in the long term.
    In addition, product-level demand can be used as a basis for decision-making in order to actively control advertising campaigns. For example, you may prefer to include products with a high demand in your marketing campaigns in order to increase customer frequency, turnover and sales.

  • Determine cross-price elasticities

    When it comes to dynamic price optimization, it is important to be able to strategically consider complementary goods and substitutes, and also to be able to price them separately. Complementary goods that are purchased together – such as a monitor and the matching cable – can be determined via cross-price elasticities and offered directly as a bundle. The central advantage of this approach is that bundles can increase both profit and frequency. However, to avoid cannibalization, pricing software should take substitutes into account, so the sale of one item does not automatically lead to a decline in demand for its substitute(s).

  • Target sales dates and target sales ratios should be processed by the pricing software

    Driving price decisions by target sales dates and target sales ratios enables the optimal use of supplier bonuses or market development funds. At the same time, it also supports your inventory planning team to plan your storage capacities in such a way that, for example, discontinued models are sold out before a new generation is introduced.

  • Regular price adjustments

    Industry giants such as Amazon often dictate the dynamics of the competition, as is the case with consumer electronics. What’s more, Amazon adjusts its prices multiple times a day, even hourly during peak times. In order to keep up, you should rely on regular price changes. A dynamic price optimization solution supports you in this and takes a large part of the manual price maintenance off your hands. According to your assortment and current influences (e.g. new releases, upcoming holidays or changed demand due to the pandemic), you can adjust prices daily, weekly or monthly. For each price change by the pricing software, you can also specify the business KPIs on which the price adjustment should be based.

From my point of view, consumer electronics retailers can only remain competitive in the long term if they rely on dynamic pricing. Reach out to me today to learn how dynamic pricing can benefit your business.


Mrs Pricing

Mrs Pricing