Dynamic pricing management

Last update: 2021-10-01
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Dynamic pricing is a responsive pricing strategy where the price changes based on the demand, supply, trend, and competition in real-time. It is not a new concept; it has been around for a while now but is surely taking over ecommerce. Dynamic pricing gives retailers the leverage to change prices to have a competitive advantage. For example, you can try decreasing the price of a product that isn’t selling well to try increasing sales.

There are three factors that drive dynamic pricing, including:

  • Industry—Retailers need to check what is the most basic price of a product among other brands.

  • Market—What is the current supply and demand? What is the predicted supply and demand?

  • Customers—What is the customer purchasing behavior? What is the price the customer is willing to pay for a product.

You need to look at every aspect when working on a dynamic pricing strategy.

Dynamic pricing diagram

Advantages

Like any other strategy, dynamic pricing has advantages and disadvantages. Some of the benefits of applying a dynamic pricing strategy include:

  • Allows retailers to gain insights on customer purchasing behavior and market trends

  • Retailers can set different product prices based on the most basic price set for the product by other brands

  • Allows retailers to analyze what price would be most acceptable for the customer to spend

  • Helps to maximize ROI

  • Provides retailers with a competitive advantage

Disadvantages

Some of the disadvantages of dynamic pricing include:

  • Not regularly updating the price. Even though software manages the price, it is essential that human interaction is available constantly

  • Fluctuating prices often confuse customers (some customers might wait for the prices to change again or some customers might lose trust)

  • Competition with other brands might increase initially when the strategy is applied

Best practices

Some best practices that you can apply when implementing a dynamic pricing strategy include:

  • Set a good pricing strategy that is more initial pricing based. Initial pricing is straightforward and helps you understand the market and the market pricing.

  • Introducing a loyalty program can help introduce different dynamic pricing levels for different types of customers

  • Analyze real-time demand for products when setting prices

  • Apply a holistic approach when implementing dynamic pricing because a product can be different prices in different stores (for example, a hot Dog in IKEA costs less than buying a pack of buns at the supermarket)

The most effective way to benefit from implementing a dynamic pricing strategy is continuously learning about your customers, competitors, and the market.

B2B vs B2C

Dynamic pricing differs between B2B and B2C businesses.

B2B should

  • Provide customized pricing for customers

  • Automatic change in price based on the quantity

B2C should

  • Maintain consistency

  • Maintain price

  • Display promotions and discounts

  • Terms and Conditions to be displayed

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