Dynamic Pricing Hits Retail Big Time ... INFORMATION RULES ... Great for Consumers

Black Friday was yesterday, kicking off the 2012 holiday shopping season, as it does each year.

Shoppers were out in force, crowds often became unruly and bargains were galore. That's consistent with prior years, too.

But something new is happening to retailing. Both online and bricks and mortar retail competitors are using information to change their pricing in real time in an effort to offset the prices offered by  competition. It's called dynamic pricing, and it's real. It's a case of information rules and will be a powerful ally for consumers seeking the best deals. And who's not?

So what do retailers think and what are they doing about it?

Well, low cost retailers like Wal-Mart and Amazon will benefit from dynamic pricing relative to their higher cost competition as their low operating cost advantages will enable them to price competitively and still remain profitable. However, relatively high cost retailers like Sears and J.C. Penny will likely either see profits or volumes decline, or perhaps both, in this brand new hypercompetitive world of retail.

In the case of Sears and J.C. Penney, private label and exclusive offerings like Craftsman and Sephora, as examples, will become even more important if these retailers are to minimize the impact of the comparative pricing battle.

For consumers armed with information, including iPhones, real time pricing will be a bonanza. So even for those consumers who chose to skip the frenzy of Black Friday this year, real time information will help them get the best deal possible on what they want to buy, and they won't have to fight the crowds and drive all over town to do it.

Holiday Price War Rages in Real Time reviews the effects of yesterday's behind-the-scenes online retail activity:

"While shoppers jostled and shoved their way through the usual long lines for Black Friday retail deals, a new and more pitched battle was being fought online that promises to redraw how stores plan for their big door-buster specials.

The historical race between e-commerce retailers and their physical-store rivals continues. But in a new development, bricks-and-mortar retailers are turning the tables, using their websites to match rivals' marquee discounts more aggressively than ever.

When Target Corp. advertised plans to sell a $400 Dyson Ball vacuum cleaner for $269, Best Buy Co responded by cutting its online price for the vacuum by $80, to $300. Best Buy wasn't immune. When the electronics retailer published a circular advertising it would sell a $1,500 Nikon camera for $1,000, Amazon.com Inc. followed up Thanksgiving morning by cutting its price for the same camera to $997.

The fast price changes during the year's most competitive shopping period highlight a sea change in how retailing is done. The rise of e-commerce, along with an explosion in data and the power of technology for analyzing it, has made it possible for retailers of all stripes to monitor their rivals' pricing strategies and react in seconds, sometimes with computer algorithms making the decisions.

Store chains have long battled each other to offer the best deals. But new technology has enabled them to do so more accurately, comprehensively and faster than ever. For consumers, that could mean access to the best bargains without the need to wait in long lines in the cold and dark. For retailers, however, the risk is the profit-killing discounting that already characterizes Black Friday could expand as chains are forced to be more aggressive to stand out.

To fight online competition, retailers also try to shift as much as possible to exclusive gear that can't easily be matched. They're also matching more of their offline deals in their online stores....

The spread of e-commerce, however, means most retailers will have to get used to more flexible pricing. . . .

Amazon said it constantly revises its listings, a practice known as dynamic pricing, that may help it match or beat competitors' prices or cause rivals to drop theirs. Amy von Walter, a Best Buy spokeswoman, said the retailer routinely monitors its rivals' prices and aggressively makes adjustments to stay competitive.

Wal-Mart's e-commerce team in Silicon Valley has built sophisticated tools that let it adjust prices throughout the day to stay competitive.

The stakes are high as retailers begin what is expected to be a less robust holiday season than in recent years. Retail analysts at consultants Bain & Co. expect holiday-shopping sales to grow 3.5% in 2012, a little slower than in the past two years. Consumers are confident, but they're also still cautious.

Black Friday, with its deep discounts, isn't good for profits. But chains that don't participate risk losing shoppers' attention at a time when a fifth or more of their sales can be on the line. Shawn Score, Best Buy's newly appointed head of U.S. retail operations, said the point of all the discounting is to earn shoppers' loyalty for future purposes. . . .

Amazon jumped aggressively into the fray last year, offering early discounts and encouraging shoppers to use its Price Check app while in rivals' stores to see if the e-commerce giant's prices were cheaper. . . .

 

Mike Fridgen, chief executive of retail price monitor Decide.com. said Amazon changes its prices more frequently than other retailers on any given day. In the last few day days, the e-commerce giant made significant numbers of changes to match door busters offered by bricks and mortar rivals.

The developments could mean Black Friday becomes worse for profits than it already is."

SUMMING UP

Instant information, e-commerce, dynamic pricing, a soft economy and excess bricks and mortar physical retail selling capacity all add up to a great time for consumers to buy the right-thing-at-the-right-price-from-the-right-retailer with MOM.

In dynamic pricing, information will rule and consumers will reign. And retailers' websites will become an even more important piece of the retailers' competitive landscape.

So take your time, fellow consumers, to access relevant information in real time, avoid the crowds and buy it right!

Welcome to the new world of retailing where the low cost providers who offer consumers the best deals will end up being the most profitable, too. Don't they always?

The more things change the more they stay the same.

Thanks. Bob.