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A Peek into the Future of Price Optimization

The problem with all of the dynamic pricing strategies described so far is this: Chances are good that companies are leaving money on the table. That's not the objective of dynamic pricing—at least, not to the business.

How can this difficulty be prevented?

Currently, companies compete with other companies for a consumer's business. What's needed is a dynamic pricing technology that makes consumers compete with each other for a company's business. And in the process, we need to give companies important real-time market intelligence on the value of their products and at what price they'll sell. No guesswork, manual or otherwise, or the need for constant attention. In other words, why not go right to the source and ask your shoppers what they're willing to pay, and not guess at what their response might be? While you're at it, why not get them to compete with each other for the privilege of buying from you?

With the technology of the Internet, pricing can get personal. I don't mean just preferred pricing for repeat customers, but the ability of every consumer to buy at the price she's willing to pay. In other words, use the technology of the Internet to make products and services sold on the Net act like the stock market. Give consumers the ability to place "market orders," "limit orders," and "open orders," and to participate in an IPO-type auction on any product or service offered on the Net. It could work like this.

  1. Make the price of a product or service fluctuate based on supply and demand.
  2. Give consumers a way to make it known that they will purchase a product or service when and if it reaches a certain price.
  3. Give consumers a way to offer the price that they will pay and a response from the merchant if it accepts that price.
  4. Finally, offer the product and service at auction.

You might be thinking that each of these techniques has been tried in one way or another by companies on the Net. True, to an extent. But here's the secret. To make this scheme act like the stock market, you must combine all four techniques, working on the same product or service at the same time (concurrently).

With concurrent dynamic pricing, an eBusiness doesn't have to decide whether to sell its goods via a fixed-price model such as Amazon.com's, an auction model like eBay's, or a "name your own price" model such as Priceline's. Instead, an eBusiness can sell goods and services through all these methods concurrently, with the price of the goods or services fluctuating minute by minute, based on actual customer demand and price sensitivity.

When such a pricing strategy is implemented, that's the day when the business paradigm will be turned on its head. Companies no longer will competing against each other for a consumer's business, but consumers will compete against other consumers for a company's business. For more information on this type of dynamic pricing, see my article "Flexible Pricing: A Concept Whose Time Has Come."

In my next article, we'll consider how to promote and market an eCommerce web site and what the eCommerce manager should know.

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