“dynamic pricing is the (fully or partially) automated adjustment of prices. It’s a staple of the travel industry: dynamic pricing is the norm for airline tickets, hotel rooms, and ride-sharing services.“
However, you may be curious to understand a few practical examples of dynamic pricing for better clarity. In this blog, let’s take a look at the companies that use dynamic pricing, and how and why they adopted this strategy.
Also Read: 4 Business Benefits of Dynamic Pricing
Industries that Use Dynamic Pricing
Before we head on to the different companies using this strategy, let’s first take a quick view of the industries that leverage dynamic pricing abilities that we have explained later in the blog:
5 Dynamic Pricing Examples Across Companies
This price optimisation strategy is used across different industries and businesses. However, to explain it effectively, let’s first look at the companies that use dynamic pricing.
Dynamic Pricing Example #1 – Amazon
How is Amazon using dynamic pricing as a winning pricing strategy?
To begin with, let’s understand dynamic pricing in e-commerce: Amazon. The former bookstore is now one of the world's biggest (if not) greatest online retail stores. It sells everything. Books, pipes, electronics, wine and more. One of the reasons they have grown into one of the biggest companies in the world is their use of dynamic pricing.
A study by McKinsey says:
”In e-commerce, Amazon has long been a leader in dynamic pricing; the company reprices millions of items as frequently as every few minutes.”
According to research, Amazon changes their product prices on average every 10 minutes. This means that product prices change 144 times a day, 1008 times a week and 52.560 times a year, on average. This amount of price change is what makes Amazon the go-to space for consumers. But it also leads to Amazon being able to offer the right price at any given moment.
All the data Amazon gathers from customers’ buying behaviour, competitors, profit margins and inventory is used to increase profitability. And with success. Amazon boosted its profit by 25%. That’s how incredibly effective dynamic pricing in eCommerce could be.
Dynamic Pricing Results for Amazon
- The increased amount of price changes for products
- Best price at any given moment
- Boosted profits by 25%
Dynamic Pricing Example #2 – Uber
Uber Dynamic Pricing is a Profit Gainer
Uber uses dynamic pricing for two reasons – to boost profits and ensure that taxis are covering all demand. When demand for taxis in a certain region is high, Uber automatically increases customer prices to make these rides more attractive for Uber chauffeurs.
These prices ensure that people who do not care about the price pay significantly more than normal, resulting in more Uber drivers coming to the high-demand area. When the demand is met, the prices go back to normal. People also call this surge pricing.
Dynamic Pricing Example #3 – AirBnB
How AirBnB Dynamic Pricing Works
One of the peek examples of pricing strategies in hospitality industries is how AirBnB uses dynamic pricing on its platform. Although AirBnB acts as a mediator – a rental platform connecting properties with renters – it also has a dynamic pricing function built into its platform. AirBnB calls this function “Smart Pricing”, and it automatically changes the prices of your property if certain factors are changed, such as season, demand, property features or location.
Next, people can add their own constraints, such as a minimum price per night. This looks like pre-defined business rules, which B2C & B2C companies frequently use in their pricing practices.
Property owners that use Smart Pricing are 400% more likely to receive a booking than property owners that don’t.
AirBnB states that people who use the “Smart Pricing” function are 4x more likely to receive a booking than those who do not. They state that this function alone increases revenue for people by 12%. And Amazon profits from this too, by receiving more commissions.
Dynamic Pricing Example #4 – MediaMarkt
Why MediaMarkt Implemented Dynamic Pricing in their Retail Store
Dynamic pricing is not only implemented in online web shops but it can also be implemented in brick-and-mortar stores. MediaMarkt, a European electronics company with more than 500 stores in different countries implemented dynamic pricing with electronic price tags in stores.
According to their price manager, a TV can have different prices during different times of the day, but this also brings risks. Therefore, they decided to partially refund customers two weeks after their purchase, if the product's price was lower than when they bought it.
The key takeaway of this is that dynamic prices can harm the customer’s trust. For some products, people are more likely to accept frequent price changes than for others. They do not want to feel cheated. MediaMarkt specifically counters this dynamic pricing disadvantage by offering a partial refund.
Dynamic Pricing Example #5 B2B wholesaler with SYMSON
How SYMSON Combines Dynamic Pricing with Human Intelligence for Clients
SYMSON implemented a dynamic pricing strategy for a wholesaler which sells technical irrigation systems. In the past, this company mainly priced its products based on discounts, and they calculated the optimal discount for each customer.
- To optimize pricing for this wholesaler, SYMSON implemented a key-value item pricing strategy, a geographical and rule-based pricing strategy. Within the limits of the rule-based pricing strategy, there was room for price optimization (aka dynamic pricing).
- For many companies, throwing out all pricing rules and making pricing decisions based purely on an algorithm may be hard. Therefore, SYMSON implemented a pricing strategy which allows room for dynamic pricing in combination with set business rules, based on the experience and knowledge of its client.
In this example, dynamic pricing and human intelligence are combined to form a symbiotic relationship between AI & humans. Instead of replacing old habits, dynamic pricing strengthened existing pricing practices.
In today's dynamic market, many businesses are adopting flexible pricing strategies. This post explores a range of dynamic pricing examples across diverse sectors, from hospitality to transportation and e-commerce.
Dynamic Pricing Examples Across Industries
Now that we have discussed the companies that use dynamic pricing, let’s understand how businesses use it across industries.
Dynamic Pricing in the Airline Industry
One of the most prominent dynamic pricing examples lies in the airline industry. Airlines have long employed this strategy, adjusting their ticket prices according to demand, seasonality, and flight time. For instance, prices often spike during peak travel times and decrease during off-peak hours.
As more companies use dynamic pricing, the approach becomes more sophisticated. Today, airlines also consider factors like browsing history, purchase patterns, and even the type of device used for booking, enabling them to personalise prices further.
Dynamic Pricing in the Hotel Industry
The dynamic pricing hotel industry approach also provides a compelling example. Here, the pricing of hotel rooms fluctuates based on factors such as occupancy rates, time of booking, and seasonality. During peak periods, hotels increase their rates to capitalise on high demand. Conversely, during slower periods, prices are lowered to attract more guests.
Moreover, similar to airlines, one of the new pricing strategies in hospitality industry includes using advanced algorithms that consider a broader range of factors. These might include local events, competitor pricing, and even weather forecasts.
Dynamic Pricing in Ridesharing Services
The ridesharing sector, particularly Uber, offers another excellent example of dynamic pricing in action. Uber dynamic pricing, also known as surge pricing, adjusts fares based on the demand and supply of drivers. Prices increase during peak times, or in areas with high demand but few available drivers. This strategy maximises revenue during high-demand periods and incentivises more drivers to become available.
Dynamic Pricing in Accommodation Sharing
Another dynamic pricing example is found in the accommodation-sharing industry, with Airbnb being a prime example. Airbnb dynamic pricing adjusts the cost of listings based on numerous factors, including location, booking dates, the size of the property, and local demand. Hosts can opt to use Airbnb's smart pricing tool, which automatically adjusts prices based on these factors.
Dynamic Pricing in E-commerce
Many e-commerce businesses also take advantage of dynamic pricing strategies. Amazon, for example, has made headlines for its use of dynamic pricing, with prices changing multiple times a day based on factors like demand, competitor prices, and even customer browsing habits. To know more, here’s how dynamic pricing is used in ecommerce.
These dynamic pricing examples demonstrate how this strategy is used across various industries to optimise profits and balance supply and demand. From pricing strategies in the hospitality industry to dynamic pricing in the airline and e-commerce sectors, dynamic pricing is a potent tool in today's volatile market. Businesses considering this approach must understand their industry dynamics and customer behaviours and have the right tools to execute effectively.
Why do Companies use Dynamic Pricing?
A wide range of companies use a dynamic pricing strategy for multiple reasons;
- For increasing profitability in webshops (Amazon),
- Matching demand with supply (Uber),
- Or to offer the most up-to-date price in brick-and-mortar stores (Mediamarkt).
One of the main similarities of all these companies is that they use their platform(s) to gather as much data as possible, to optimize their prices fully.
These are all big companies as examples of companies that use dynamic pricing. However, smaller companies and e-commerce also started to implement this pricing strategy into their core business practices, with the help of SYMSON.
Do you want to hear more examples of dynamic pricing? Or do you want to know more about how SYMSON can help you implement dynamic pricing in your business? Do not hesitate to reach out!
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!