Choosing the best dynamic pricing techniques for your online business

You’ve got the perfect product, you’re ready to go live with it, but there’s one key factor you need to consider – are your pricing yourself out of the market? Time to consider the pros and cons of dynamic pricing techniques…

Dynamic what?

Dynamic pricing is also referred to as third-degree price discrimination or time-based pricing. It’s used when you have two or more sub-divisions of customers with different requirements. Dynamic pricing allows you to select what type of price you charge, depending on which audience is viewing your product page.

There are some ethical debates surrounding the principles of dynamic pricing, but it is a method that has been used by countless companies and, if used correctly, can increase your company profits considerably.

There are two primary types of dynamic pricing, one that is used for limited supply situations, and one where supply is unlimited. Drop-shipping falls into this secondary category, but is becoming increasingly unpopular amongst customers and if they find that you are drop-shipping from a third party they can quickly become ex-customers!

Dynamic pricing harks back to the basic economic equation of supply and demand. The more limited the supply of a product, the more demand increases and consequently, the higher the price. The more plentiful a product the lower the cost, as profit will be based on the number of units sold, not the value of each individual unit.

How are the big boys doing it?

Major online retailers such as Amazon are also using a few additional tricks to make dynamic pricing work for them. Ever wondered how Amazon comes up with your ‘Recommended’ list? It’s all down to some very clever algorithms that collect data on your browsing history and how you travel around the site. But delete those cookies that they insert into your operating system and you’ll see a change in the prices of items you’ve been watching.

Allowing Amazon to access your browsing history shows a level of customer loyalty that is rewarded with a certain set of pricing values, whereas clearing your cache indicates that you’re less inclined to be swayed by their tactics and therefore are subject to a different set of values. Harsh? Yes. But that’s dynamic pricing strategies for you.

How should I be doing it?

As an Internet business, you have access to a wealth of data-mining techniques that will tell you about your customer base, how they interact with your business and their personal preferences. You can use click loggers, statistics generators and a wide range of data gathering software that allows you to apply dynamic pricing principles to your own business. A good accounting software package will also be able to help you use your projections and actual monthly profits to see what pricing strategy will benefit your business in the long term.

But a degree of self-control has to be a part of your strategy, and you must never be in a position where you can be accused of employing unfair pricing strategies (as Amazon found themselves in 2000). While savvy customers will expect to be manipulated to a certain degree when it comes to online pricing strategies, make it too obvious or too blatant and you will quickly earn yourself a reputation for price ‘fixing’ rather than manipulation.

This was a guest post by Carlo Pandian,is a freelance blogger and online tutorial writer on Intuit accounting software. He loves sharing business tips with entrepreneurs and speaking at conferences on how Internet can boost the revenue of start-ups.

Angel Investment Network’s Weekly Funding Roundup

Here’s a roundup of some of the recent seed-stage and angel deals from around the world:

  • CodeSealer, developer of a unique software solution to protect web banks against hackers, gets 3M Series A funding from two Danish VC funds
  • iPourIt, the self-serve beer provider, has closed a Series A round of funding with participation from METRIX Capital Group
  • Singapore-based mobile rewards platform Gimmie has closed a SG$639,000 investment led by local firm Wave Maker Labs
  • YieldMetrics, which provides breakthrough analytics products to the online display advertising industry, closes $1.7M seed funding
  • Desti, a smart travel guide for the iPad, has raised an additional $1m in seed funding
  • TabSquare, a Singapore-based eMenu provider for restaurants, has raised SGD 589K funding from Get2Volume
  • Mumbai-based BookAdSpace, a technology platform for physical advertisement media owners and media buyers, has raised angel funding
  • BetterCloud, a provider of cloud management tools for Google Apps, has raised $5M Series A financing
  • The Art Commission, a platform connecting artists with design professionals and art lovers, raises $510,000 angel funding
  • Cloud software company Skynet Labs, which focuses on the global oil and gas exploration sector, has secured €750,000 seed funding
  • ArthroCAD, a developer of medical devices to improve surgical outcomes for joint replacement procedures, closes Series A funding
  • Cause.it, a mobile app allowing nonprofits to reward volunteers with offers from brands & local businesses, lands $500K seed funding
  • Zirtual, a marketplace that matches professionals with virtual executive assistants, has raised $2M Series A funding
  • Convertro, a platform that enables marketers to know all of the advertising and marketing that led to a sale, has closed $5M funding
  • Thatspersonal.com, an India-based website that offers adult lifestyle products, has raised angel funding
  • Jebbit, a platform that connects college students with companies, websites and mobile apps they’re interested in, raises $229,000 funding
  • TrueAbility, a cloud-based assessment service to help companies evaluate technical job candidates, has raised $750,000 seed funding
  • Moontoast, a social marketing startup with clients including Nike and Lexus, has raised $5M Series B funding
  • AppCard, a mobile app that basically connects users with their favorite stores to get personalized offers, gets $6.5M funding
  • vArmour Networks, a pioneer in software-defined security for virtualized data centers, has raised $6M Series A financing
  • 15Five, which makes software used by a company’s employees to send reports to their managers, has raised $1 million seed funding
  • Mobile software development pioneer, Phonitive, raises €400,000 angel funding from Capitole Angels & DP Invest
  • Tred, which allows you test drive cars from your doorstep, lands $1.7 million seed funding
  • Fanplayr, a startup focused on driving conversions on any website that offers an ecommerce component, lands a $2M seed investment
  • LiquidSpace, the online marketplace that helps everyone find a better space to work or meet, raises $6M Series B funding

To get regular updates, come follow us on Twitter: http://twitter.com/angel__network or register for our blog at http://www.angelinvestmentnetwork.net/wp-login.php?action=register.

Have you managed to raise capital for your company?  We always love to hear from entrepreneurs who manage to get funded.

Or are you looking to raise funding?  Send me a summary of your project at mike@angelinvestmentnetwork.co.uk and we’ll try to help.

 

Infographic – Inside the Investor’s Mind

Jeff Clavier walks through his thinking when a startup pitches him for funding.

Infographic – Halo Report Q3 2012 showing angel investment activity and trends in the US

The Halo Report is put together to show angel group investment activity so entrepreneurs and investors have better access to information that will help them better understand angel investing and jump start their emerging businesses.

Based on the Q3 data, a few notable items have been identified:

  1. Median Angel Round Size Hit Five Quarter High: In Q3 2012, the median size of angel & angel group syndicate rounds reaches $640K, the highest in the five quarters the data has been tracked.
  2. Early Stage Valuations Remain Stable: The median pre-money valuation for early stage angel group deals is $2.6M, slightly down from $2.7M in Q2, for a rolling 12 month period.
  3. Syndications Declined in Q3.We don’t know the significance of this finding yet, but thought it was an interesting data point that we will continue to monitor.
  4. Investments in Mobile Companies Jumped Up: Mobile companies saw increases in both deals and dollars; the share of deals for mobile companies reaches five quarter high.
  5. 10% of Angel Group Deals are structured as convertible debt, 2012 YTD. We just started tracking this, so we don’t know how it’s trending yet, but we do know that is significantly higher than with venture capital.

I couldn’t agree more with this quote from venture capitalist Joanne Wilson

“I am a big believer in building the product first, getting some traction and proving to the investor community that there is a business model there that will make the investors their money back and more.”

Personally I think traction, progress, proof (whatever you want to call it) is one of the most important factors for angels looking at a deal.

Infographic – Conflicts that kill startups

This is a great infographic from the guys at Funders and Founders. Here they illustrate some of the conflicts that can kill partnerships.