Our AI’s dynamic pricing algorithm is built to maximize revenue. We measure its success by how much more money it makes than your fixed pricing.
It learns by testing different prices with different combinations of visitors and products (your site). Its goal is to find the best price for every shopper and each product at each moment. That’s the vision and we are getting closer every day. Our AI has served unique prices to hundreds of millions of shoppers across thousands of products.
The math is very complex but the ideas behind our AI’s dynamic pricing are very simple:
There are buyers that are willing to pay more.
Some of these guys own a mac or they may live in rich neighborhoods or they may be shopping at night, etc. They may have a spotify subscription, buy at Amazon.com at least once a week, they are used to pay for online content, etc.
If a buyer with this profile comes to your tour and you charge him $30 when he could have paid $40 then you just left 10 bucks on the table. On monthly memberships we usually price no more than $10 away from the fixed price the client set. If the fixed price is $30 the AI’s price can go as high as $40 and as low as $20.
There are buyers that don’t have much purchasing power.
These shoppers probably don’t use a mac or live in a nice neighborhood or shop at night, etc. They may use the free spotify subscription (they don’t mind about the ads every X minutes), they visit Amazon.com every year on Black Friday, and they consume a lot of free content at tube sites (sometimes they get seduced and click on an ad).
This type of user wants to consume your content but can’t afford paying a subscription at regular prices. If a buyer with this profile comes to your tour and you try to charge him $30 then he will just probably decide to leave and go back to a free tube site (because he can only afford paying $15). In this cases, you lose money, big time. You know the expression, “a bird in the hand is worth two in the bush”? That’s about this type of shopper.
For these shoppers the AI’s dynamic pricing algorithm may find out, through constant testing, that the best way to make you more money is to apply a discount. Your first reaction to this could be, “We don’t operate a charity!” Right? We get it. But you know what, the A.I. doesn’t know about that. It doesn’t even have this kind of concept programmed in its logic. It only knows, after exploring a lot of options, that Price X will make you more money with that shopper and that product at that moment.
There are some corner cases where certain discounts don’t make sense. This can happen when the revenue wouldn’t cover costs and it is better not to have the sale at all. Though this is a rare case for digital goods (ex. subscriptions to digital content) where some money is almost always better than 0 money, it is easier to imagine for hard goods.
The AI’s dynamic pricing algorithm doesn’t know about costs. For these cases we can teach the AI about them. In fact, when clients want to set a minimum price we tell the AI, “Don’t go below $X.” The client tells us what the minimum amount is that she can accept (via email) and we pass the rule to our AI algorithm. But be careful. The AI wouldn’t offer lower prices to selected shoppers unless it made you more money, through a combination of better conversion rate and higher lifetime value
The AI’s dynamic pricing algorithm’s job is to figure out which price will get each shopper to spend the maximum amount of money with you.
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