Dynamic pricing is a pricing strategy where prices change in response to real-time supply and demand and Dynamic Price Optimisation Models are used to tailor pricing for customer segments by simulating how targeted customers will respond to any price changes.
In a nutshell, dynamic pricing is an innovative, flexible pricing mechanism made possible by recent advances in pricing software that allows companies to immediately adjust the prices of their goods according to prevailing market conditions.
This kind of price modelling helps to forecast demand, develop pricing and promotion strategies, control stock levels and improve customer satisfaction.
85% of consumers believe that price impacts where and when they will make a purchase – so ignore this pricing revolution at your peril!
An increasing number of retailers are taking a leaf out of Amazon's book and are beginning to implement the same dynamic pricing strategies.
Dynamic pricing gives retailers of all sizes the opportunity to compete against a company as large and resourceful as Amazon whilst enjoying impressive margins.
Another advantage of dynamic pricing is real-time information about market forces. This information can let companies immediately see the effect of sales and marketing activities and they can fine-tune their production accordingly. It also provides warning signals concerning falling demand, reducing the likelihood of unsold stock.
Dynamic pricing enables retailers to capture the most revenue from their products. Retail Prophet put it this way: “It enables a retailer to optimise their pricing based on real-time inputs, as opposed to setting a price over the long term and either pricing too low and giving up margin needlessly or charging too much and losing sales.”
You can appeal to a larger market with segmented pricing. Have tiered prices from value through to premium in order to capture as much of the market as possible.
You can offer lower and higher end versions of your product to bring in revenue from customers with differing budgets.
Peak pricing allows you to take advantage of fluctuations in demand, increasing prices when demand is high or when your competitors have low stock.
Airlines and travel booking sites do this all the time. There’s no reason why a manufacturer launching a new component can’t also use dynamism in their pricing.
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