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What is a Dynamic Pricing Strategy?

dynamic pricing strategy is used by businesses that constantly change their prices based on external factors, sometimes in minutes. Basically, the goal is to sell the same item or at various prices under different conditions.

Dynamic Pricing Across Industries

Businesses adjust prices using algorithms that take into account supply and demand, market prices, inventory levels, and many other factors.

Event Planners

Event organizers rely on dynamic pricing algorithms to drive revenue sales and create a sense of urgency.

For example, an event planning company can write dynamic pricing rules that raise prices every five days and every time another 100 tickets have been sold.

Ridesharing Services

Companies like Uber and Lyft create prices based on the demand for rides. When the demand is strong — during holidays, poor weather, or after concerts — then the cost of fares increases through “surge pricing.”

Airlines

Airlines use factors such as the number of available seats, seasonality, flight time, and the number of days before the flight to set the price of their tickets.

How To Implement A Dynamic Pricing Strategy?

The best way to execute a dynamic pricing strategy is by using rules-powered algorithms.

Rules-based algorithms enable businesses to change prices to meet customers’ ability to pay as they’re searching to make a purchase.

To do so, businesses have to consider many different factors to find the right price. The most common variables are present costs, inventory levels, seasonality of products, and the competitors’ prices. 

Obviously, vendors decrease the prices of products that they have in abundance while raising the prices of items that are in strong demand.

Is Dynamic Pricing Cheating?

There’s a heated debate about whether dynamic pricing is a legitimate strategy. Some businesses are reluctant to implement dynamic pricing because they are apprehensive that customers will misinterpret dynamic pricing as price manipulation.

Ultimately, customers choose whether to buy a product, and businesses need to find the sweet spot and set the right price that fits consumers’ budgets.

The Best Dynamic Pricing Software Solution

In order to fully maximize the benefits of dynamic pricing, companies need a software tool that can work out market demand, inventory levels, and seasonality, and then determine prices accordingly.

To make well-timed price changes businesses require a certain level of automation that algorithms can offer. However, writing algorithms requires technical expertise and continual support.

That’s why a business rules engine is one of the most important components of every robust dynamic pricing software tool. A rules engine is a sophisticated piece of software that executes conditional if-then statements called business rules that help companies dynamically price their products. 

Rules engines also come with user-friendly graphical interfaces that enable non-technical staff members to make immediate adjustments to complicated pricing rules without having to rely on support from the IT department. 

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