Profitable businesses need to cover costs while using prices that generate revenue but are also reasonable. External factors like consumer demand, competitor pricing, and market conditions play a huge role in determining pricing strategies. A dynamic pricing strategy is a proven way of boosting market share because it tracks the willingness of customers to make purchases as a basis for setting prices.
What is a Dynamic Pricing Strategy
Dynamic pricing is an effective sales strategy used by businesses that constantly adjust prices based on external factors, many times in minutes.
Basically, a dynamic pricing strategy allows companies to sell the same item at different prices under different conditions.
Dynamic pricing has been popularized by ride-sharing companies like Uber that change prices based on demand. Uber uses “surge pricing” when demand is hot— during the holidays or when the weather is bad— to boost the cost of ride fares.
Dynamic pricing is widely used in the following industries:
Obviously, each industry relies on different conditions to implement its dynamic pricing strategy.
How Does Dynamic Pricing Strategy Work?
The best way for businesses to carry out dynamic pricing is by using rules-based algorithms.
These algorithms allow companies to change prices to offer what consumers are willing to pay when they’re searching for the item in question.
The most common variables that companies consider when determining dynamic prices include:
- Supply. Inventory levels, future costs, etc.
- Demand. For example, product page views websites.
- Prices that competitors are using
Obviously, lower prices help with slow-moving inventory while higher prices for popular products generate more revenue.
Dynamic Pricing Strategies
There are a couple of very effective dynamic pricing strategies that businesses use to set the cost of products and services.
Simply put, companies use time-based pricing to charge more when delivering a faster service. For instance, when customers pay more for same-day delivery.
This tactic is frequently used by retailers who sell items that are popular during certain seasons.
This strategy uses the prices of competitors as a foundation on which it makes adjustments.
Competition-based pricing is commonly used in highly competitive industries because even a small difference in price can sway a reluctant customer. may be the crucial differentiator for most buyers.
Advantages of Dynamic Pricing
When properly executed, dynamic pricing is probably one of the most successful pricing tactics. We go over some of the most meaningful benefits of dynamic pricing that help businesses grow.
Helps Out the Staff
During a spike in traffic, businesses can use dynamic pricing to reward their employees with higher wages.
Make Attractive Offers
Dynamic pricing empowers companies to create promotional offers that drive revenue. Lowering prices when there’s a lull can help boost sales of certain items. Discounts are also a great way of selling overstocked items.
Beat the Competition
Companies are able to beat the competition by making changes in real-time. The ability to instantly change prices in response to changing market conditions grants businesses an incredible competitive edge.
The Best Dynamic Pricing Software
Companies need a solution that enables the staff to manage and make changes to prices in response to new circumstances.
In other words, they need a business rules engine that allows subject-matter experts to make changes to the pricing policy without having to rely on the IT department for help!
Companies use rules engines in order to leverage the expertise of their employees.