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What is dynamic pricing?

In this blog you will learn what is dynamic pricing and how using it can contribute to your company's success.

Dynamic Pricing

With a dynamic pricing strategy, companies constantly adjust prices to maximize margins, conversion and profit. Most of the time, this is done automatically by smart software and algorithms. This process automates mundane pricing adjustments by pricing managers and enables them to spend more time working on more complex challenges and tasks. Dynamic pricing is a relatively new concept and practice. Until recently this was not available for a lot of companies. However, due to the advancements in technology, dynamic pricing is available for more and more businesess.

Always offer the optimal price

On one hand a dynamic pricing model optimizes margins and on the other hand sales opportunities. It does so by offering a price that matches the demand curve and the supply curve, to not leave any room for additional profit margin on the table. This pricepoint is sometimes refered to as the equilibrium. At this pricepoint one offers a price for which the supply will sell out exactly. The dynamic pricing model does not only factor in supply and demand at a given price, but also other factors, such as the prices of competitors, cost, seasonality or other factors. This is all done automatically with software that automatically responds when changes happen in the previous mentioned factors. The relevant factors can vary based upon the industry of specific business challenges.

(Automated) Price changes

Instead of offering fixed prices, prices can vary (between a certain pre-defined range if required). If done correctly, the optimal price can be presented to customers at any given moment in time. Prices that vary are not new. The prices of fruit in the supermarket also change depending on the season. However, prices that change every day, hour or even per minute are only possible since recently. Although this practice was first found in online web shops, there are coming more and more opportunities to do this in brick-and-mortar stores or B2B sales as well. All this leads to more profit margin, as you can see in the image below.

dynamic pricing

This pricing strategy is often used in combination with other pricing strategies such as the competitor-based pricing strategy or the key-value item pricing strategy. Combining a dynamic pricing strategy with other pricing strategies is especially powerful because it combines an already proven pricing strategy with the power of automated price changes.

Real-life example of dynamic pricing software

Amazon is an example of extreme dynamic pricing strategies. Amazon changes product prices’ on average every 10 minutes, to constantly offer the best possible price to its customers. Changing prices this often is not required for every business but changing your pricing a few times per week can already lead to significantly increased results.

Conclusion

Dynamic pricing is the constant and automatic changing of prices to maximize margins, sales opportunities and profit. In comparison to the past, this pricing strategy has become more available for a wider range of companies. With the right pricing knowledge and data sources, companies can achieve their business objectives better and faster.

SYMSON helps pricing managers to automate mundane pricing tasks and gives advice on how to increase pricing strategies. It does so by combining artificial intelligence and smart algorithms with business rules. To combine and to strengthen human and artificial intelligence with eachother.

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!

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