Price Automation in eCommerce

1. What is price automation?
2. Dynamic pricing in action
3. How price automation works
4. Price automation benefits

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eCommerce is one of the most dynamic and demanding industries ever. According to Shopify, global sales in this sector are expected to total $5.5 trillion worldwide in 2022.

If you want to succeed in this challenging market, you have to automate as many elements of your everyday work as possible.

Modern technologies allow you to automate almost anything, even content marketing. But today, we want to focus on automating prices in your online store. How can it be done? And what are the benefits you can expect?

Setting prices manually is a tedious and time-consuming task. At the same time, it’s also immensely important because, as we all know, price is one of the most important deciding factors in retail.

No one wants to overpay for products, and the online trade has created favorable conditions for anyone looking for the best deals. With giant marketplaces like Amazon and Otto and price comparison websites like Billiger and Geizhals, finding the best offer for the product that a customer is after is a breeze.

If you want to succeed online, you have to make sure your pricing strategy is effective and well-thought-out. But let’s go back to setting prices manually. There are a few problems with such an approach.

For starters, the bigger competition you have, the more challenging it becomes. Visiting tens of online stores and analyzing their prices is simply ineffective – exploring all the prices you want to check would take weeks.

Moreover, because prices in eCommerce change frequently (even several times a week), such a manual analysis quickly becomes outdated.

But you have to do SOMETHING, correct?

Traditional pricing strategies (like, e.g., cost-plus) are no longer sufficient; you need to consider more elements that affect the final price of the product. All of that means that you need a smart way of setting and optimizing prices in your e-commerce business.

And price automation is the answer you’ve been looking for.

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What is price automation (dynamic pricing)?

Price automation is a strategy that uses intelligent algorithms (typically using AI and machine learning) to set and maintain prices at the optimal level. In order to use price automation in your store, you have to opt for one of such solutions.

Building such an engine from scratch would be extremely expensive and time-consuming. Thankfully, you can use ready-made software, e.g., provided by Dealavo.

The price automation (also frequently referred to as dynamic pricing) algorithms have but one purpose – to make sure that your store offers optimal prices all year round.

Optimal prices mean that they ensure your profit (you have the possibility to set the minimum profit margin) and are attractive from your customers’ perspective (so it doesn’t mean being more expensive than the competition).

It seems like a long shot, doesn’t it? But it’s possible, primarily because dynamic pricing analyzes all the available data (coming both from your store and the market) and uses it to set the best prices.

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Dynamic pricing in action

Take a look at this hypothetical example. Below, we see five competitors selling Sony TVs.

In the initial situation, the price difference between BuyTV.com and BuyCheapTV.com is just €2. However, because BuyTV.com has a pricier offer, this store lands in the fifth position.

Now, concerning a product worth €500, €2 is just a 0.004% difference in price – almost nothing. That said, when BuyTV.com decides to lower the price by €2.01, they automatically land in the first position.

Sure, they will make €2 less on each TV sold, but there are some benefits to being in the first place.

Above all, you get much better exposure. No one is interested in the fifth price. But the first one – that’s a whole different story.

Because you’re more visible, more customers are likely to place an order in your store.

And what’s better for your business – to sell three TVs at the price of €501 or to sell five TVs at the price of €499? The answer is obvious.

And that’s how dynamic pricing algorithms work. They analyze competitive offers looking for opportunities to boost your visibility and profit by lowering (or increasing) prices automatically.

Perhaps at this point, you’re thinking – how can I be sure that price automation will help me make more money instead of damaging my income? That’s a valid question!

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How price automation works (and how to ensure profit)

It all starts with a list of the products for which you want to use price automation. Such a list should be created using EAN codes.

Once you have a list of products, you upload them to the dynamic pricing platform (this process can be automated by integrating the price automation tool with your ERP system or eCommerce platform), and it uses provided data plus market data to propose the best prices.

Bear in mind, though, that especially at the beginning, the algorithm will have to learn your expectations. The longer it works, the more effective it becomes.

However, if you’re still afraid that the algorithm won’t do its job well, you can set a list of predefined rules instructing how prices should be set. For instance, you can set the minimum profit margin you have to make on each product sold.

The list of such rules is far longer; you can discover them all here. This way, you make sure the algorithm works precisely as you want.

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Price automation in eCommerce: the benefits

There are three major benefits of this pricing strategy:

1. Improved visibility of your offer: One of the predefined rules you can set is “TOP3 in the selected sales channel”. With this rule, you maintain visibility in TOP3 offers, which means that almost all customers interested in a particular product see your listing.

But even without this rule, thanks to optimally set prices, you get better visibility in a number of sales channels.

2. Higher profit: In general, price automation was created to help companies using this tool make more money and sell more products.

In many instances, it can turn out that it is possible to increase prices in your store without damaging your position or reputation. In such a situation, the algorithm will propose you to increase a price of a given product, thus boosting your revenue.

3. Time savings: Automation is all about saving time. Thanks to price automation, you don’t have to manually analyze prices in other stores or set your own prices – everything can happen automatically without your involvement.

As a result, you can focus on other aspects of your work and save a lot of time.

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Start using price automation with Dealavo

If you want to give price automation a try, see Dealavo’s website and their price automation offer. German users can order a free trial period to see how this solution works in their stores.

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Aleksandra Holownia

Aleksandra is Marketing Manager at Dealavo – a company offering price monitoring and dynamic pricing tool. She regularly writes articles about pricing in eCommerce. Aleksandra graduated from Warsaw School of Economics and Wroclaw University of Economics where she deepened her knowledge about marketing, market analysis, finance and pricing.

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