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Concurrent Dynamic Pricing

Concurrent dynamic pricing is a next-generation application of flexible pricing and has no analogy in the brick-and-mortar world. Concurrent dynamic pricing combines the four pricing methods listed above into one, allowing merchants to sell more products faster and at higher prices than other pricing systems.

With concurrent dynamic pricing, an e-business doesn't have to decide whether to sell its goods via the fixed-price model of Amazon.com, the auction model at eBay, or a "name your own price" model such as Priceline. Instead, an e-business 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.

Concurrent dynamic pricing turns the business paradigm on its head. Instead of companies competing against companies for a consumer's business, consumers compete against other consumers for a company's business.

Here's an example of how concurrent dynamic pricing would work.

Let's say a company called Cameras-R-Us sells a wide variety of cameras—including digital cameras. As is so common with consumer electronics today, the next generation of the Digimatic camera line will be available to consumers in 60 days. The Digimatic Camera Company alerts Cameras-R-Us that they'll be promoting the new camera—the Digimatic Model 200—to the public in 30 days. That gives our little retailer 30 days to unload his supply of the Digimatic Model 100.

Traditionally, getting rid of the excess inventory would involve sharply discounting the product and marketing it through the company's web site or through printed catalogs. These methods would result in reduced margins that barely cover the cost of maintaining inventory. In other cases, the entire lot might be sold to a liquidator for pennies on the cost dollar. In an effort to reduce the inventory cost quickly and maximize the return on the outmoded product, however, Cameras-R-Us has elected to sell the excess items via the concurrent dynamic pricing method on its web site.

After setting a few simple business rules, such as a start price, the number of cameras it will sell, and how long the sale will last on that item, Cameras-R-Us is ready to sell its Digimatic Model 100 cameras. The cameras will be offered to buyers via the flex pricing, open order, "name your price," and auction pricing methods—all simultaneously.

Flex pricing allows a buyer to purchase the camera at a price that fluctuates based on supply and demand over a certain period of time. If demand for the camerarises, the concurrent dynamic pricing method automatically raises prices. If demand is slack, the price is automatically lowered, based on the business rules configured by Cameras-R-Us.

Simultaneously, cameras are being sold through the "name your price" method. Offers are accepted or rejected based on a formula that incorporates the value that Cameras-R-Us has assigned to the entire lot of the Digimatic Model 100 cameras. Cameras-R-Us also lets shoppers place an open order, where they choose a price they want and place an order that is "good until filled."

Meanwhile, the Digimatic Model 100 sale has stirred the interest of customers who prefer to buy via auction. Auctions start at $1, and Cameras-R-Us has set a reserve bid price for the cameras. Because the available stock of cameras could be depleted by customers who are buying them via the flex pricing, open order, and "name your price" methods, the supply of cameras via the auction method is constantly being reduced. Eager bargain hunters will have to wait until the end of the time period during which the product is offered to find out whether there are products left and their bids are accepted.

Much like other auctions, bidders can increase their offers until the end of the auction, increasing their chances of winning. If the Digimatic Model 100 has reached a point where its price has "cleared the market," few, if any, will be left at the end of the time period for the auction. If so, auction buyers are compelled to buy at the current higher flex price, thus giving Cameras-R-Us a better price for the product than if they sold it through a single pricing method. On the other hand, if the Digimatic Model 100 produced little demand from buyers, Cameras-R-Us could still clear the lot in the auction process.

As you can see, unlike other dynamic pricing methods where buyers compete with each other in one vertical sales channel, with a concurrent dynamic pricing tool buyers compete with each other horizontally across all four dynamic sales methods over price and through time. The quantity of product is sold concurrently across all dynamic sales channels; as a product is sold in one channel, the quantity decreases in all others. As a product sells and its numbers decrease, this places pressure on buyers to decide whether a fast-moving product is worth waiting for at a lower price or they should buy now at the higher price. The end result is that the merchant sells more inventory faster, recovering a higher percentage of the product's value.

Finally, online merchants gain an important benefit when using a concurrent dynamic pricing tool. Unlike the new retail revenue optimization applications that can only guess at what price a consumer might buy a product, concurrent dynamic pricing lets consumers tell the merchant exactly what they're willing to pay—and compete with other consumers to pay it.

Now that's progress!

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