Where are we? A brief overview
In most industries tiered pricing is the norm. A set of predefined tier levels are typical established at deal signing and are mapped to by the lead provider. These values may change over the lifetime of a relationship; however, at any given point a finite number of pricing points are valid. This model is widely accepted and is easily adaptable into almost any classic "waterfall technology". Dynamic pricing is nothing new, most people toss the term around loosely when discussing wish list features of a new platform. However, few ever actually implement and even fewer actually have a robust enough model in place to bid effectively alongside their classic tiered model.
How are tiered and dynamic different
Again, tiered is by far the most common and widely accepted form of pricing available, almost all systems harness some form of tier mapped waterfall. This model is drastically different than a true dynamic pricing model in many aspects. For one, all margins must be calculated in real time, this is especially evident when both your lead provider and target buyer are dynamic pricing based. Secondly, no pre-determined sequencing may be used (when maximum payout is your primary focus, some consideration still must be paid to contractual “first look” obligations).
Also to note, when using a classic tiered model, a number of buyers may be grouped as potential target buyers for a lead. For example, your system may identify a maximum Tier 2 payout based upon coverage. This coverage may exist across 3 potential Tier 2 buyers, each of which could potentially purchase the lead if the primary recipient denies a sale attempt. This is not the case typically in a dynamic pricing model as a provider payout may be fine tuned to your maximum buyer payout, which in most cases will vary down to the penny.
What are the benefits?
Dynamic pricing's most visible strength is in its ability to excel in extremely competitive markets. Changes to tiered pricing are slow, painful and cannot keep up with industry fluctuations. Dynamic pricing allows you to, on each lead, identify your supply vs. demand and bid appropriately and bid accordingly.
Dynamic also pricing gives you the flexibility to “work the system”. Many relationships have strict guidelines over the characteristics of leads that are bought and sold; the age of the lead, the aggregation methods, the market and or locale, the consumer’s level of intent or likelihood of conversion. Each of these guidelines may have some level of effect on payouts both to you and your lead providers.
Dynamic pricing tips
1. Don’t try to replace your tiered model with a dynamic model. Instead, adjust your tiered model to represent a lower payout (higher margins) and compliment it with a dynamic element to allow for market pricing wars and agile margin recalculations.
2. An ironclad reservation or price locking system is absolutely essential. When providing a dynamic pricing option to your providers it is crucial that you honor any quoted price (via a ping or coverage check) upon the post or sale of the lead. If you cannot, do not purchase the lead, otherwise you will be confronted with a nasty accounting headache as well as a slew of angry lead providers.
3. Create customized reporting and accounting systems for your dynamic pricing model. Unless you’re starting from scratch it is typically very difficult to retrofit dynamic pricing concepts into a classic tier based reporting model.
4. Create a flexible margining and pricing system. Take into consideration all common industry scenarios and give yourself flexibility to expand and evolve your pricing strategies as new practices and opportunities arise.
5. Think ahead and never assume anything. If dynamic pricing will teach you one thing, it is that every relationship, every market, every lead is unique. In order to squeeze every penny of profit possible out of each and every lead you’ll need to constantly evolve your bidding strategies, your technology and your insight into each of your relationships on both sides of the lead (provider and buyer).
Conclusion
I hope you have found this introduction to dynamic pricing valuable. Obviously, each and every system will be unique and present different challenges. However, I hope by reading you have learned something that may be of use in your efforts to bring about a dynamic pricing model to compliment your existing systems.
During our construction of the WambaTech Lead Server we faced many challenges directly relating to our ability to effectively offer both pricing solutions, in tandem, on both sides of the lead. Even being a team of veterans of many lead trading industries for many years we faced new challenges every day. What we eventually created was an extremely flexible system that allowed our customers to be aggressive yet smart bidders for every lead. You too, with the right planning, the right industry research, and the right team will be able to conceive a system that works for your company.
Good luck!
Nat