What Is Dynamic Pricing

Have you ever had to pay a different price for a taxi ride on the same route? Then you have encountered dynamic pricing: the more the demand is, the higher fare the algorithm suggests.

Dynamic pricing is an approach when the price of a product changes in real time depending on various factors: demand, supply, exchange rates, geolocation of the buyer, etc.

In the case of taxi aggregators (like Uber), the factors that will immediately affect the price are the time of the day, the number of orders, traffic congestion levels, weather conditions, etc. 

Not that fast, but the price of a hotel room will also change depending on the season: the more popular the destination will become among tourists, the more you have to pay.

An Internet service provider can offer new customers more attractive terms than existing subscribers have. Although in this case, the reduced rate will usually be valid only for a certain time.

The main goal of the dynamic pricing approach is to constantly put up a competitive price, which includes the maximum possible profit of the business, taking into account the situation in the market.

Dynamic Pricing in retail: an example

Global giants such as eBay and Amazon use competitor price monitoring and various dynamic pricing types to achieve two goals: to attract as many customers as possible and increase profitability.

Amazon changes prices about 2.5 million times a day, which means the price of an individual item is reviewed every 10 minutes on average. E-retail leaders are using automation to optimize sales. While some customers may complain about this, it is a strategy that has helped Amazon increase profits by 25%.

When Should You Implement Dynamic Pricing?

When you want to quickly and automatically change prices on a site with a large number of SKUs, taking into account certain external and internal factors:

• competitors’ prices, sales and promotions;
• prices of similar products;
• expected conversion rates, logistics and marketing costs;
• shortage of product in the market (to increase margins for products that are in demand and yet only you have);
• availability of your product in stock;
• exchange rate fluctuations;
• margin levels and price floors;
• product shelf life, etc.

Pricer24 allows you to automate the pricing process and scale the most effective strategies for all product categories, even with a small number of category managers. You will be able to:

• set individual rules and parameters for each category;
• consider competitor prices and other parameters from those mentioned above;
• set up the parameters you want to monitor and those you want the system to visually indicate so that you can adjust the strategy;
• get prices via API or integrate Pricer24 with your website. Then if you change a price in the system, it will automatically change on your website.

What Advantages Business Gets With Dynamic Pricing

Dynamic pricing helps to:

• Increase revenues. According to McKinsey analysts, using dynamic pricing models will achieve sales growth of up to 5%.
• Attract more customers. Setting competitive prices based on current market conditions will ensure that you attract new customers and increase the loyalty of the existing ones.
• Stimulate interest in certain products. This approach also works as a means of influencing customer behavior and helping them to assess the demand. If the customer is watching the price of certain products on e-commerce platforms and sees the price tag increasing, this can boost interest and encourage them to buy the product.
• Choose the most profitable strategy. Based on accurate and up-to-date market data, you can create pricing strategies to achieve various goals: increasing revenue, increasing sales, effectively selling the slow-moving inventory and more.

Eager to learn about the advantages of pricing automation with Pricer24? Let us know in the form below.