CONTACT US

    Dynamic pricing: how to adapt your offer to market prices in real time

    FacebookTwitterLinkedInWhatsAppEmail

    Offering potential buyers a specific product or service at the right price and the right time by taking full advantage of an omnichannel approach is at the core of dynamic pricing. This sales strategy is increasingly being used by companies, with the aim of maximising profits by varying prices in line with market demand. 

    This, in turn, alters the buying behaviour of consumers, who have become accustomed to online prices changing within periodically recurring timeframes or over the course of a year, month, week, day or minute.

    Dynamic pricing and its uses

    Harking back to terminology that originated in the United States (in terms of the approach itself, the practice emerged in the air industry from the 1980s onwards), dynamic pricing is a pricing strategy based on continuous price flexibility

    In this era of personalised buying experiences, more and more online marketplaces use dynamic pricing algorithms that can vary the price, basing it on specific factors (such as the supply and demand relationship – which companies can adapt using statistical criteria – or popularity with the public). These factors can impact the price individually or in combination with each other.

    Optimising prices with artificial intelligence

    Thanks to a wide range of variables (from speed of purchase and similar products in the basket to users’ purchase intent and average spend), artificial intelligence algorithms can aggregate users’ information via tracking technologies and social channels to give an extremely accurate estimate of market demand for a product or service. 

    And that’s not all – algorithms can also manage and optimise how attractive a product is (and therefore the sales linked to it) by generating a dynamic model which sets the price range most appropriate to the market context at any given time.

    Benefits of dynamic pricing

    Profiling the behaviour, preferences and location of individual consumers, using insights they have gained to personalise the offer and correctly timing promotions and optimising stock means that companies can set a price range that maximises their profits.

    And, if done correctly, this pricing strategy helps companies retain their competitive edge in the market, against a backdrop of continual challenges: from greater price transparency and sustainability and increased pressure from competitors to winning customer loyalty and optimising warehouse and resource management.

    According to a Statista report, in 2021 15% of e-commerce companies in North America and Europe 

    expected to use dynamic pricing in the shopping basket (with 27% of companies looking into using it). The report also found that 21% of the companies it interviewed who sold goods and services online were already using dynamic pricing; 32% had no plans to adopt the strategy in the coming year.

    So, the dynamic price is right

    With the proviso that there is no single solution that works for all companies, what dynamic pricing strategies exist? The most common dynamic pricing models are:

    • Segmented pricing: its main feature is attributing different prices to identical products on the basis of the consumer’s location.
    • Time-based pricing: in this case, the product’s price is directly linked to the date of its appearance on the market. The price often decreases over time but, for some types of products, it can also increase.
    • Peak pricing: specifically, the price of a product is directly connected to market demand. Price reductions or increases are made in relation to demand across different periods of the day and/or year.
    • Penetration pricing: with the aim of rapidly gaining a significant share of the market, companies set their initial prices lower than the average, increasing them over time in parallel with demand.

    It goes without saying that a dynamic pricing strategy that can adapt over time and anticipate possible variations must go hand in hand with innovative platforms and technologies that are perfectly integrated and aligned within the digital ecosystem as a whole.