Once the business has determined its objectives, the second step is to identify a strategy to implement. There can be many reasons for a business to implement dynamic pricing, such as attracting more customers, improving profits, competing with other brands, or penetrating the market. The first step of the dynamic pricing strategy process is to identify the reason for changing the pricing strategy. As a limited number of shoes are available, prices will be high at launch and further increase as more pairs are sold.ĭynamic pricing strategy is a pricing strategy where the price of a product or service fluctuates based on market demand, supply, and other external factors. Consider limited-edition Jordan sneakers. Availability and seasonality influence the price of the product. If the supply of mangoes decreases, the price of mangoes will increase. Availability of product: Mangoes are seasonal fruits available only in certain months of the year.If a high-quality product is offered at a discount but still higher than fair value, consumers may still buy it because of their perception of the product's value. Perception of product value: A consumer thinks about not only the price they are paying but also the quality of the product.But digital technologies today can help companies identify demand during a particular hour of the day. Anticipating demand as per festivals or seasons is easy. Digital technologies allow companies to determine when the demand for any product is high or low. This principle of economics holds in this case too. Product demand: The price of a product will increase if demand is high. On the other hand, in an oligopoly, competition plays a vital role in deciding the price of a product - for example, Tesco's promise of a price match with Lidl and Aldi. Market structure: In a monopoly market, a product's dynamic price depends on consumer demand, not competitor pricing.If consumers think the price is unfair, they may feel cheated and will not pay. Fair price: Price fairness is defined as "consumer's evaluation and understanding whether the difference between seller's and other party's prices is reasonable, acceptable or justifiable" (Maital, 2004 McFadden, 1999).If a customer is from a higher-income class, as per their purchasing history, they might have to pay a premium value for a product. Customers willing to buy a standard loaf of bread are high in number as compared to customers willing to purchase a gluten-free one. Prices of products vary depending on whether customers are regular or not. Customer characteristics: generally dictate buying patterns, customer base size, and segment.For example, supermarkets offer perishable goods at reduced pricing if products are reaching expiry. Dynamic pricing strategy concentrates on myopic customers. These categories are myopic customers and strategic customers. Customer behaviour - By analysing past data, companies can divide customers into two broad categories according to their behaviour.Dynamic pricing has different definitions depending on the focus of the research.Īn initial definition of dynamic pricing is as follows: Dynamic Pricing Definitionĭynamic pricing (DP) is known by many names, like time-based pricing, surge pricing, and demand pricing. By exploring real-world examples of successful dynamic pricing implementation and following some key rules, you can effectively leverage this strategy to boost your bottom line and keep your business ahead of the curve. However, it's important to understand both the advantages and disadvantages of this pricing strategy and its potential impact on a business's profitability. John witnessed a dynamic pricing strategy.ĭynamic pricing has become increasingly popular in today's business world as companies seek to optimize their revenue and stay ahead of their competitors. To his disbelief, all prices he saw an hour ago had now increased by almost 10%. John jumped on his laptop to make bookings. They both worked out a plan and agreed on a budget. Well, he couldn't go further without discussing it with Seema. John googled famous locations in Spain, shortlisted some hotels, and made a travel itinerary, including flights to book. I need to book flights and hotel for the holidays as soon as possible", said John to his wife, Seema.
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