Can lowering your prices actually hurt your sales? In eCommerce, the relationship between price and sales volume is a complex one. Decades of luxury retail evidence has shown us that often, there’s a psychological association between low prices and low perceived quality.
In other words, racing to the bottom can hurt your bottom line.
Perceived value matters just as much as price point. So if you’ve already nailed your product content, reviews, and rankings — there’s a smarter way to price. One that helps you protect your brand image and avoid selling at a loss.
In this article, we’ll explain everything you need to know about dynamic pricing and how to use it to optimize your sales and profitability.
Not sure if you’re priced correctly? Try the Amazon Price Elasticity of Demand Calculator and find your best price.
Dynamic Pricing vs. Repricing: Definitions and Use Cases
In eCommerce, your pricing strategy can make or break your success. Two of the most popular approaches are dynamic pricing and repricing. Here’s the difference between the two, and the keys to using each to stay competitive and maximize profits.
What Is Repricing?
Repricing is the practice of adjusting your product prices based on market conditions, competitor strategies, or pre-defined rules for your pricing.
Use Case:
Let’s say you sell a Vitamin D gummy supplement, and there’s one competitor that’s far outselling you and the rest of the market.
Using a rules-based approach for your repricing, you can set up an automatic price adjustment to ensure that your product is always $0.10 cheaper than that competitor. You create the rule and your pricing software automatically monitors the marketplace and applies it for you as needed.
This is a great strategy to use when you have a singular goal in mind, such as winning the Buy Box or staying competitive during peak seasons.
What Is Dynamic Pricing?
Dynamic pricing is a method of optimizing product pricing using AI to analyze key internal and external business goals, marketplace factors, and more. Rather than “setting and forgetting” the price that you think is right, dynamic pricing applies continual changes in real-time in response to shifting market conditions.
This approach, also called algorithmic pricing or AI-driven pricing, incorporates a wider range of factors than repricing, including:
- Competitor prices
- Demand trends
- Time of day or season
- Customer behavior
- Inventory levels
Dynamic pricing allows for more nuanced pricing decisions and quicker adjustments to market changes.
Use Case:
Imagine you sell a smartphone case. Your dynamic pricing tool notices the conditions for a perfect storm (profit storm, that is):
- It’s two weeks before a major holiday.
- Your main competitor is out of stock.
- Search volume for your product has increased by 30%.
Based on this information, the algorithm increases your price by 15% to maximize margins during this unexpected demand surge, without pricing yourself out of the market.
Dynamic pricing allows you to react to complex market conditions in real-time, actively balancing competitiveness with profitability to consistently find the sweet spot in your pricing.
Pricing Strategies for Amazon and Walmart
Which pricing strategies should you use if you’re selling on Walmart or Amazon marketplaces? Let’s start with their capabilities.
Both Amazon and Walmart offer built-in tools to help you manage product prices:
- Amazon’s Automate Pricing tool lets you set rules to automatically adjust prices.
- Walmart’s Price Management tools include features like Pricing Opportunities.
These tools are useful, but they’re essentially repricing tools. (After all, if these platforms gave every seller access to sophisticated AI pricing algorithms, they would turn into a bot battlefield.)
Amazon and Walmart’s built-in tools focus mainly on competitive positioning rather than overall profitability. To truly thrive on these platforms, the advanced strategies available on third-party pricing tools become key.
With pricing tools specifically designed for third-party sellers, you can:
- Balance competitiveness with profitability
- Respond quickly to changes in the market
- Optimize prices across different marketplaces
At the end of the day, your success in eCommerce isn’t just about winning the Buy Box. It’s about building a sustainable business that generates both sales and profits.
5 Pricing Best Practices for Advanced eCommerce Sellers
Pricing is key to long-term success as a marketplace seller. But how do you know if you’re doing it right?
Here are five best practices to follow when creating your pricing strategy.
1. Decide When to Use Dynamic vs. Manual or Rules-Based Repricing
Dynamic (or AI-driven) pricing and manual or rules-based repricing each have their place. The differences lie in your goals and how much manual control you need over your pricing.
| Dynamic Pricing | Repricing | |
|---|---|---|
| Pros | Adapts to complex market conditions Considers many factors simultaneously | Simple to set up Predictable outcomes Precise control |
| Cons | Sometimes more expensive Requires quality data input | Less flexible May miss profit opportunities |
| Best for | Products with fluctuating demand, competitive markets | Winning the Buy Box at all costs, clearing inventory, matching competitor prices |
While rules-based repricing can make sense if you’re laser-focused on rankings or Buy Box wins, AI-powered dynamic pricing is more agile, less time-consuming, and supports long-term profitability.
2. Document a Comprehensive Pricing Strategy
Documentation isn’t sexy, but it is critical to streamlining and scaling your pricing strategy. The right pricing goals and standard operating procedures (SOPs) can help keep your team on the same page about which approaches to use and when.
Your pricing strategy should outline:
- Clear pricing goals and target KPIs
- Explanations of pricing strategies for different channels and product categories
- Guidelines for making adjustments
- Flowcharts for handling various pricing scenarios
There’s no right or wrong pricing strategy — it all depends on your bottom-line objectives. For example, if you’re entering a new market, you might prioritize gaining market share with competitive pricing. For more established products, you’d likely focus on protecting margins.
3. Use Advanced Pricing Tools
Advanced dynamic pricing tools give you capabilities beyond the basic options native to your marketplace, including features like:
- Real-time market analysis
- Cross-platform competitor tracking
- Demand forecasting
- Profit margin optimization
- A/B testing for pricing strategies
The right tool can help you identify each product’s price elasticity, spot market trends before your competitors, and automate complex pricing rules to keep your profits healthy.
For example, Boosted Commerce implemented Trellis’ dynamic pricing tool to manage their 25+ brands on Amazon. The result was a 2% increase in margins, 13% growth in sales, and 20% rise in total profits.
Trellis helps you set optimal prices with the power of AI. Check out our Amazon dynamic pricing software.
4. Balance Price and Perceived Value
Strategic pricing is part art, part science. There’s a psychological component to what consumers want to pay — and it’s not always the lowest price.
Because of the association between bottom-barrel pricing and low quality, it’s crucial to maintain perceived value while staying competitive.
Here are a few ways to do that:
- Add high-quality images, videos, and detailed descriptions to your product listings
- Showcase social proof like customer reviews and rankings
- Highlight unique selling points
- Consider bundle pricing to increase perceived value
There are plenty of high-profile brands successfully running premium pricing despite hot competition. One such example is Lululemon. The activewear brand sells a pair of leggings for over $100 when the top result on Amazon is listed for $9.99.
Why does this work? It’s all about positioning and perceived value. When they pay $128 for leggings, buyers are getting more than leggings. They’re gaining access to a community of consumers who can afford the best leggings that money can buy.
5. Seasonal and Event-Based Pricing Strategies
Finally, a pricing strategy isn’t complete without considering how to capitalize on seasonal trends and events. Dynamic pricing tools shine in this arena, giving you the ability to:
- Analyze historical data to predict demand spikes
- Automate price adjustments for time-sensitive opportunities
- Gradually increase prices leading up to peak season
- Hold flash sales during major shopping events like Prime Day
Whether your Q4 goal is to increase sales, drive greater profits, or put a brand new product on the map, planning for these tactics in advance helps ensure that your pricing supports your stated goals.
Implementing Dynamic Pricing for Long-Term Success
At Trellis, we believe dynamic pricing is the strategy of the future. Repricing will continue to have its place in specific scenarios, but as AI continues to improve, sellers who know how to use it to their advantage will remain a step ahead.
Here are a few key steps to help you nail the execution.
Prepare for Common Challenges
Dynamic pricing isn’t a magic wand. Most brands face some hurdles during implementation, including:
- Team resistance. Provide thorough training and share success stories with your team to make adoption smoother.
- Customer perception of price changes. Maintaining price consistency for loyal customers and clearly communicating value can help manage this perception.
- Short-term vs. long-term strategy. Set minimum and maximum prices that align with your brand positioning to balance short-term gains with long-term brand building.
Measuring the Impact of Dynamic Pricing
Pricing can impact a variety of your core business KPIs. It’s important to monitor how your implementation of dynamic pricing affects your performance, including the following core metrics:
- Advertising cost of sales (ACoS)
- Click-through rate (CTR)
- Conversion rate (CR)
- Inventory turnover
- Volume
- Sales
- Profit
- Profit per session (pPS)
Taking the time to gather data and extract insights is the key to growing profits with dynamic pricing. If you don’t already have a centralized reporting system, consider looking into an eCommerce merchandising platform that does the number crunching for you.
Future Trends in eCommerce Pricing
AI and machine learning technology is advancing at an exponential rate. For sellers, it takes intentional effort to keep up.
As sophisticated pricing algorithms pave the way for increased competition, it’s important to differentiate through your product content, unique value proposition, and personalized pricing.
Embracing the Future of eCommerce Pricing
Dynamic pricing is more than a trend. It’s a crucial strategy for long-term success in eCommerce.
When you’re ready to optimize your product prices in real-time, Trellis can help. Our powerful eCommerce platform leverages insights on seasonality, competitors, and more to improve sales velocity, boost your organic ranks, and scale your profits.Set automated pricing using the power of machine learning. See Trellis’s dynamic pricing tool in action with a free personalized demo.
