The benefits and strategies of dynamic pricing

WHAT IS DYNAMIC PRICING?

Dynamic pricing is a strategy that allows prices to change in real time based on the market environment and consumer behavior. Instead of traditional static pricing, dynamic pricing allows businesses to optimize prices based on demand, supply, competitor prices, and other relevant factors.

HOW DOES IT WORK?

The data and information on which dynamic pricing is based (e.g. competitor prices, market trends, consumer behavior, demand trends) are collected and analyzed by businesses using software solutions such as PriceKit. Based on the data, specific pricing strategies can be automatically applied and prices can change instantly.

THE BENEFITS OF DYNAMIC PRICING

• Provides more accurate pricing that better reflects market conditions and consumer demand.

• Increases profits by optimizing prices so that the webshop can sell its products and/or services at higher margins during periods of higher demand.

• Increases competitiveness, as dynamic pricing allows a fast and efficient response to market changes, giving businesses using pricing software a competitive advantage.

• It improves the customer experience, as prices are adapted to the real-time environment, and can provide consumers with more attractive offers.

• Provides more efficient operations: for example, if a competitor runs out of stock and the e-trader knows this immediately/before the competitor, there is more room for price increases.

AREAS OF APPLICATION

Dynamic pricing can be applied across a wide range of industries and sectors. In the retail sector, for example, e-commerce is often used by e-shops to optimize their product prices. In the travel sector, airlines and hotels have long taken advantage of dynamic pricing to display the optimal price for airline tickets and room reservations. Moreover, dynamic pricing is also becoming increasingly popular in the services sector, for example in passenger transport applications, where fares vary according to supply and demand.

EXAMPLES OF DYNAMIC PRICING STRATEGIES?

Segmented pricing: this strategy offers different prices to different customers, i.e. it divides customers into segments.

The "best available position" pricing strategy: i.e. the best position available relative to the minimum price you set. This method allows you to take the best possible cheap price position dynamically and yet without losses, no matter how the market changes.

Value-based pricing: as the name suggests, value-based pricing is not based on costs, competitors' prices or other factors, but on what the customer values the product or service. The prices are set based on what buyers in the current market area are willing to pay for that product or service. So the price is based on the buyer's perceived position. It is not surprising, therefore, that luxury brands often use this pricing strategy.

Competitor-based pricing strategy: in this method, you monitor price changes for the same or very similar products of competitors and set your own prices on that basis. The big advantage is that the price is not the deciding factor when buying because of the similarity of prices. However, you really need to know the prices of your competitors and maintain a consistent position to avoid brand image erosion. This is also a method that automated pricing software can help tremendously to track.

Time-based pricing: businesses can use this method when they want to charge more for faster service.

Peak time pricing: This strategy can be used in many industries to charge higher prices during peak periods. Most businesses that follow the time-based pricing strategy use price optimization software to improve the re-pricing process.

HOW TO GET STARTED WITH DYNAMIC PRICING?

If, as an e-trader, you are interested in dynamic pricing, the question is: how do you get started?

There are so many competitors in the market, there are so many products, and it takes an incredible amount of time to manually track prices and price them. However, with the right pricing software, like Pricekit, you can automate the whole process, which not only saves time but also increases efficiency.

Want to learn more about PriceKit's useful pricing features? Then sign up here and we'll give you a free demo to show you how PriceKit's automated pricing software can help your business increase profits!

SUMMARY

Dynamic pricing strategies need to be handled with care, but if used carefully they offer a very wide range of options for both your business and your customers.

Dynamic pricing does not have a fixed, set price: it can vary depending on the type of product, the industry, market conditions, demand, and, of course, the type of customer targeted. 

This strategy is very common in some industries (airlines, hotels) and as time goes by, more and more industries of different sizes and types are willing to try dynamic pricing.

As competition in the e-commerce market has increased significantly, retailers are facing a tough challenge to maximize profits while keeping their prices competitive. In this situation, dynamic pricing with the help of pricing software can prove to be an ideal solution.