TheTopLineLab presented the keys to combine Dynamic Pricing and Customer satisfaction at the European Pricing & Commercial Excellence summit in London (April 16th to 18th).
Here are some highlights, under the shape of a Q&A between Guillaume Tujague (TheTopLineLab), and Konstantin Leshchenko (IQPC):
It is true that dynamic pricing can boost revenue in the short-term, but many argue, that in long term it brings significant downsides that negatively affect customer satisfaction. Is there a way to avoid that?
It is a valid concern, but the simple answer is Yes. There are different ways to ensure we (1) run the Dynamic Pricing optimization including customer satisfaction influence factors (2) Monitor properly the customer satisfaction impact from the granular & automated pricing optimization done.
How to take Customer Satisfaction influence into account in Optimization
The concept of Dynamic Pricing does not consist in optimizing one single KPIs (be it Top or Bottom line related), it is all about finding the pricing configuration fitting the best with the Trading & Strategic objectives which definitely include Customer Satisfaction KPIs (e.g. Branded channel share, Repeat rate, Reviews rating….).
How to monitoring Customer Satisfaction impact
It is possible but it is not easy to isolate the impact.
We can find out some KPIs that are pretty indicative of the side effects from the Dynamic Pricing (e.g. Demand evolution on Branded channels, Attach rate of adds-on services…) vs the “Business as usual” expectations.
Several Customer Satisfaction measures exist such as the NPS (Net Promoter Scores) that are pretty good indicators of how the end customers are perceiving the Dynamic Pricing practices.
Having a Control group un-exposed to the full dynamism of the pricing optimization is also a good way to measure very well the entire impact on customer satisfaction on every single KPIs.
What do you think is the frequency threshold in price updates per day / per week, so that the customer still takes these changes “seriously”? Is there any difference in travel industry / retail / other industries?
I think it is quite impossible to give a generic answer to that – it all depends on the customer context, the market maturity, the channels, the end consumer acceptance.
Yes there are major differences across industries – e.g. My mother understanding of Dynamic Pricing in the Travel industry is a no brainer, however explaining her she´d have to pay +x% for her granddaughter toy gift on a Saturday afternoon than on a Tuesday morning is more challenging for me let´ s say – It´ s all about educating customers and demonstrating that Dynamic Pricing does not equal to poorer customer experience (e.g. The transportation is much more affordable to a wider audience nowadays with the Granular, Automated & Frequent pricing changes).
How do consumers react to dynamic pricing, once they understand it is happening? Do they now have strategies to adopt it?
Again, consumers reaction depends on plenty of factors of course – but overall it is our mission to make them understanding that doesn´t only mean increasing prices.
There are/will be the very Price driven customers, the deal hunters or whatever terminology used, who are actually looking after understanding the mechanics behind the Price definition – e.g. we literally see customers physical behaviours changing to get access to the best deals once they understood one key criteria behind the algorithm.
On the other extreme side, you also have the convenience driven customers who are not daring to make special efforts to reach lower prices, it doesn´t mean that they don´t know what happens, it just means that they just understand the valuation of their targeted convenience.
Are impacts of dynamic pricing on customer behavior different online vs. offline (e.g. airline tickets vs. consumer electronics in a mall)? In which way?
Yes channels reactivity to price dynamism is different – hence, it´s all about segmentation.
Of course the offline channel is facing major logistics challenges that doesn´ t exist on the e-commerce area – but the online channel also has his own challenges – and again, it is all about defining the list constraints that the algorithms should consider.
What is the key thing pricing professionals need to understand in order to successfully implement dynamic pricing?
Be ready to accept to re-invent your job: Move from Pricer to Trader – with all the implications that come with it.