Industry Leaders Have Tried Personalized Pricing, Does It Work?

As long as there has been commerce, there has been personalized pricing. A merchant would watch how a customer moved, looked at a product and how that person dressed to determine if offering a different price might secure a sale. It was not unusual that a merchant approach a customer who clearly wants to buy something and say "for you, the price is $15" and guarantee a sale.

Such personalized pricing in physical stores could only go in one direction - down. Now, with many businesses offering products and services online, software exists that makes personalized pricing easier and gives it the ability to take personalized prices higher as well as lower. The acceptance of such pricing is split, however. Merchants see it as a possible way to increase their bottom line but customers are hesitant.

Merchants that have tried personalized prices have run into consumer resistance. One of the main reasons consumers are concerned is that they feel there is an invasion of privacy involved in obtaining the information used to offer pricing personalized for them. Most of the information used is from previous sales if the consumer is a previous customer of the site but people feel it is unacceptable to use such personal information to direct marketing specifically at them.

Other information used may be cookies from previous visits and IP addresses. Amazon and a few other online retailers have found that some regular customers have discovered they will see different pricing after deleting cookies or browsing anonymously. They are particularly upset when the price they see as a regular customer and logged into their accounts is higher than the price they see for the same product when they view the site as an anonymous visitor. This price they see as a regular customer is what is often known as a "reservation price". This is a price that is just below the price that would cause a person to have reservations about buying that product. The fashion industry is particularly interested in how this type of pricing could benefit them.

Though women love to get a bargain on their fashion purchases, doing so on sites that use data mined from previous visits is unsettling for them. Sites selling fashions that have used personalized pricing software may find it has backfired on them and cost sales rather than increased sales. Some companies that, like Amazon, offered regular customers items at slightly higher prices than anonymous visitors, they have had to reimburse customers the difference between the price paid and the price offered non-regular customers.

Online fashion houses and boutiques are interested in using personalized pricing in a manner that lets them offer items to a wider range of customers while leaving them feeling their privacy is still secure and they are getting a good price on the items they purchase.

Some retailers are considering the use of software from companies such as Blue Yonder and Dunnhumby that uses a pricing method known as "dynamic pricing". This is a method of merchandise pricing that changes over time based on such things as inventory, prices offered by competitors and consumer demand. Though this type of pricing works quite well for travel sites, it may also do well for fashion sites since what may be at the top in fashion now might not have a high demand next week. This solution keeps pricing appropriate while not leaving customers feeling violated.

 

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