Automotive Evolution: The Emergence of Dynamic Pricing in Automotive Repair & Maintenance Retailers?
As the landscape for retailers in the automotive continues to evolve, increasing competition and an increasingly savvy consumer are two primary forces driving Auto Service Retailers to take a closer look at their pricing structures. With consumers facing financial pressures from rising costs across a range of less-discretionary categories, now more than ever consumers are seeking value driven options (in May only 44% of Canadians say they have money left over at the end of the month, down 7% from the same time last year1). Compounding this challenge for retailers is the growing access and availability technology continues to give the consumer to be able check prices across their competitors.?
The auto industry has largely lagged behind in adapting to these shifting consumer patterns, mostly due to the loyalty driven nature of the business. However, as consumers become more accustomed to digital first and value focused shopping experiences, that expectation is bleeding into how they interact with the auto industry. With the entrance of digital only competitors in the parts space and the implementation of digital service booking applications from large scale service centers, auto retailers are exploring new ways to offer increased value for the consumer. One initiative borrowed from adjacent retail industries is “Dynamic Pricing” which allows retailers to adjust prices relative to demand to maximize utilization of limited resources, be it technician hours or warehouse space.?
Dynamic Pricing as a Strategic Toolbox?
Dynamic Pricing as a strategy is yet to reach maturity within the automotive industry, however there are several strategies that are already in use within other industries. Organizations can choose to implement just one or combine these strategies in order to optimize the usage of their revenue generating assets. For an industry like the automotive one where the pool of labour to perform services is often constrained, applying a price lever to spread out demand across time can help organizations maximize their seasonal revenue generation.?
Demand Forecast Pricing is the concept of using seasonal demand trends to adjust pricing to maximize consumer willingness to pay. Consumers may have experienced this trying to book their March Break flights for last month, Airlines know that many travelers only have a short window to be able to escape the cold with the whole family, so they strategically elevate prices during that time.??
Customer Specific Pricing leverages customer information to inform pricing adjustments. For example, a retailer may determine that customers in one region or customers with specific shopping patterns are more willing to pay for a specific product or service and adjust prices shown to that customer accordingly. Organizations may also use this strategy to reward loyal customers or re-engage lost ones by providing a discount. This strategy requires a robust CRM system in place with strong customer data to support pricing decisions.?
Supply / Demand Optimization Pricing is a relatively new phenomenon and hasn’t penetrated many industries just yet. The goal of this strategy is to leverage real time data to optimize the utilization of an organization’s assets and consumer willingness to pay. Remember the last time you tried to book an Uber when you left a sports game or when you tried to catch a Lyft to the airport at 3am? In both those cases, real time data of driver supply and rider demand is combined to adjust prices to maximize the organization’s revenue.??
Real Time In-Store Competitor Price Matching is the newest of the bunch and is only possible with recent innovations. Online-only retailers have been doing this for some time, but for the physical and omni-channel retailer the prospect of changing a price label several times a day is just not feasible. That is until the introduction of Electronic Shelf Label Systems (ESLs). Now retailers can in real time adjust prices across all shopping platforms. Combining this with innovative AI solutions that enable complex competitor price comparison, organizations are now able to in real time adjust pricing to be at the frontier of price competitiveness.?
Enabling Capabilities to support Dynamic Pricing Initiatives??
Organizations seeking to implement dynamic pricing require several enabling capabilities. Firstly, on the technology side, organizations require integrated and modern PoS systems to ensure pricing changes can be implemented on an on-going basis across their organization. Depending on the dynamic pricing strategy selected, the organization may also require additional tech capabilities such as an integrated CRM or advanced demand forecasting platforms.??
Secondly, organizations require the organizational structure and talent to be able to make strategic decisions related to pricing. This may include a dedicated team that is purely focused on implementing and monitoring the effectiveness of dynamic pricing initiatives. This is especially important, as implementing any new pricing strategy (dynamic or not) will require iteration and monitoring.?
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The Automotive Bottom Line?
Dynamic Pricing has been in use in the Automotive industry for almost 10 years now. It first started when GM introduced dynamic real-time pricing for parts, soon followed by Ford and others. These initiatives have been successful, but don’t directly touch the consumer as these offerings are entirely B2B.??
For organizations in the Automotive space, where revenue generating assets are limited to a small pool of skilled workers and a constrained physical space, it could make sense to leverage dynamic pricing strategies to maximize your operations utilization and ultimately its profitability.??
Additional Considerations and Final Thoughts?
Many retailers currently offer competitor price matching, although potentially effective at retaining loyal customers, the introduction of friction during the shopping process may dissuade some potential new customers. Implementing real-time omnichannel price matching can have the positive effect of competitor price matching without the friction of making the shopper ask for a price correction.?
When making pricing changes, consumers are extremely sensitive to real-time upward adjustments (2). Therefore, retailers who do continually price match typically only adjust downwards during the day and make any upward adjustments overnight.??
Gaining a complete understanding of your cost inputs as well as demand elasticity is foundational to implementing any pricing adjustments. For example, higher margin offerings may be significantly affected by volume losses incurred from upward price adjustments as the value of each sale is so significant.??
Lastly, shoppers are responding to price changes now more than ever, and a significant portion view certain types of dynamic pricing as price gouging(3). When implementing any pricing strategies, it is important for the organization to not lose sight of the consumers perspective. American Airlines, who first pioneered dynamic pricing, summarized the strategy as this in the early 90s(3).?
“[Dynamic Pricing involves] selling a suitable product, to a suitable client, for a suitable price, in suitable time”.??
Although the goal is to maximize revenue, organizations must always strive to maintain the unwritten social contract with their customer, to provide a fair exchange of goods or services for a reasonable amount. Ultimately, dynamic pricing can help organizations achieve this by implementing pricing adjustments in either direction that benefit customers who seek convenience and customers who seek value.?
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