The Internet's entry into society has fundamentally changed how businesses price their products and services. Small business owners and entrepreneurs must understand these changes to be competitive and grasp digital platforms' vast opportunities. This article reviews pricing in the digital age.
One of the most important implications of the internet is the increase in price transparency. Now, the consumers have the power to find the best price on the offer from different vendors with just one click of a mouse. This kind of transparency drives businesses to be competitive in their pricing strategy. For example, a small electronic retailer should have been able to charge a higher price that used to be part of the local with little competition. Now, as people have all the power in the world through an online marketplace such as Amazon, they can compare prices on a global scale, which makes the retailer adjust their prices to be in business.
Consider the case of Best Buy, the biggest consumer electronics retailer. More recently, when faced with the competitive pressure of online businesses like Amazon, Best Buy was forced to switch to a price-matching policy to keep customers. The policy allows customers with evidence of a lower price from an online competitor to take that to Best Buy and have them match it. That strategy will enable them to keep the sale while catering to the transparency of the internet.
Companies can implement dynamic pricing strategies due to the flexibility they can provide in changing their prices in real-time in response to demand and depending on competition or other factors. Industries based on highly fluctuating demand, such as travel and hospitality, are more suitable.
Airlines use dynamic pricing about several ticket determinants: booking time, demand/requests, and clients' browsing history. The same technology can also help a boutique hotel optimize its room rates. A hotel can alter its rates by tracking booking patterns and competitor prices to maximize occupancy and revenue.
The medium has facilitated many businesses' operations in a direct-to-consumer (DTC) model, where companies serve consumers directly rather than through retail channels or chains. This model also decreases the price when companies don't need to add an intermediary's markup.
However, there was some revolution in the eyeglasses market when an eyewear company, Warby Parker, reached out to sell its products using a direct-to-web strategy. Since they had cut all possible intermediaries, they had free room to sell quality glasses to their customers at much lower prices than those they would find from traditional retailers. Small businesses can take plenty of leaves from this model to unearth ways to sell directly to their customers, offer competitive pricing, and enhance customer relationships.
With data collected from online interactions, businesses can provide personalized pricing to various segments within their customer base, a strategy whereby prices are optimized concerning purchase history, preferences, and behavior.
Personalized pricing based on shopping habits is a launch in loyalty programs used at e-commerce platforms like Amazon. Running a loyalty program through, for example, a small online store that gives personalized discounts to customers based on their shopping habits will help save such customers or increase sales.
The Internet offers tremendous potential opportunities for creative pricing strategies. However, it also poses problems concerning profit margins. Greater competition and price transparency through the Net can set off price wars because a firm cuts the price to outdo others. In such fights, firms may keep cutting prices without end, often cutting them to the bone.
Just consider the case of ride-sharing. Uber and Lyft have been winning individual buyers for quite some time through price wars, with huge discounts and other promotions. All that such small business owners need to calculate is a way by which they can balance competitive pricing in their businesses and yet derive a healthy profit margin. As asserted, the online dimension to pricing is profound and multi-faceted, features to a remarkable extent not just an opportunity but the challenge that knowledge of it needs to be well grasped by small business owners and entrepreneurs to acquire a significant competitive edge.
All these dimensions support small businesses in the digital marketplace: increased price transparency, dynamic pricing, direct-to-consumer techniques, and personalized pricing. However, they need to remember to maintain profit margins to ensure long-term sustainability.
