What is Dynamic Pricing?

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Intelligent pricing that take your customer into account

Dynamic pricing is when a seller changes its price to match the market and capture more customer demand. Prices fluctuate based on the underlying supply and demand, and that seller's understanding of how its customers will react to those changes.

Two Types of Dynamic Pricing

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Supply limited

In cases of expiring inventory or finite supply, such as airline seats or seat upgrades, dynamic prices are driven by customer behavior and the expected availability of supply to meet demand. This is common in travel and transportation markets.

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Price matching

If prices move only because competitors moved their price, not based on underlying demand changes or the expiration of inventory, this is price matching and is common in price transparent markets like retail.

Is Dynamic Pricing Right for your Business?

Dynamic pricing is a powerful growth and profitability tool. For retailers, being priced outside of the market can lead to bankruptcy. Toys-R-Us famously refused to price match Target and Amazon, costing it loyalty.

For companies selling expiring goods, failing to dynamically price can be even worse. Harvard Business Review provides these questions to determine if dynamic pricing is right for you.

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Is your capacity relatively fixed?

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Is your demand predictable?

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Is your inventory perishable?

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Does demand vary by time?

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Are your fixed or sunk costs significant compared to your variable costs?

If you answered 'yes' to at least four of these questions

Dynamic pricing is a powerful growth and profitability tool. For retailers, being priced outside of the market can lead to bankruptcy. Toys-R-Us famously refused to price match Target and Amazon, costing it loyalty.

For companies selling expiring goods, failing to dynamically price can be even worse. Harvard Business Review provides these questions to determine if dynamic pricing is right for you.

Interested in learning more about Dynamic Pricing? Get in touch with one of our pricing strategists today!

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