One of the factors that determine the growth of a company is its pricing strategy. Every successful business needs to cover production costs while setting prices at a rate that generates revenue. Lower prices attract more customers but bring in less revenue, while higher prices might push potential customers towards the competition. Pricing tactics are typically influenced by factors such as market demand, competitor pricing, and economic trends. Dynamic pricing is a tried and tested way of boosting market share by adjusting prices according to the willingness of consumers to make purchases. By implementing this pricing strategy, companies across industries can transform the way they drive revenue.
What is Dynamic Pricing
A dynamic pricing strategy constantly changes prices based on numerous external factors, very often in mere minutes. Basically, the goal is to offer the same item at different price points under different conditions.
Industries that Rely on Dynamic Pricing
Businesses adjust prices with algorithms based on several factors such as changes in supply and demand and market prices,
Event Management
Event organizers rely on dynamic pricing tactics to not only generate more sales but to also gin up excitement around an event. Changing ticket prices based on interest and days left before an event is key to driving sales.
Ride-Sharing
Uber calculates prices based on demand. For example, the ride-sharing company uses increases the cost of fares when demand is strong — on holidays or during poor weather conditions.
Airlines
Airlines use multiple variables such as the number of available seats, seasonality, destinations, and flight dates and times to set ticket prices.
How Is Dynamic Pricing Deployed
The most efficient method of deploying dynamic pricing is by using business rules to create pricing algorithms.
These pricing rules enable companies to change prices to meet what customers are willing to pay as they’re browsing for an item.
To do so, businesses must consider several different factors in order to determine the appropriate price at the proper time.
For example, some of the factors that e-commerce businesses use to set prices include:
- Supply: Inventory levels, operational costs, projected costs.
- Demand: Website traffic, sales, seasonality of products and services.
- Market prices.
Dynamic pricing is ideal for strategic consumers who love the thrill of finding a bargain price and enjoy hunting for deals and discounts.
Benefits of Dynamic Tactics
Dynamic pricing enables various businesses to make seasonal and promotional offers in order to boost brand awareness and drive sales. Reducing prices during a slump in sales can be an incentive to generate sales of certain products and services.
Discounts are also a great way of cutting down on the volume of overstocked products by selling at lower prices.
The Right Dynamic Pricing Tool
What’s the best software tool that companies can use to effectively implement a dynamic pricing strategy? Dynamic pricing requires that businesses make immediate corrections to prices in response to changing market conditions.
For that reason, a rules engine is the most obvious choice. Rules engines use conditional statements called business rules to outline pricing strategies. As a result, companies can use them to change prices based on market conditions, inventory levels, or seasonality.
And since business rules engines come with user-friendly interfaces, non-technical users can adjust prices without having to wait for help from the IT team.