Whereas static pricing establishes an absolute price for a good, dynamic pricing adjusts prices based on many factors in order to capture, and deliver, the most value to customers.
Driven by changes in demand or availability of supply, revenue management is typical in hotel, airline, rental car, and ticketing.
Driven by price-matching or competitor out-of-stocks, supply driven pricing is typical in ecommerce and retail.
Dynamic pricing based on demand is extremely powerful. To understand if revenue management type dynamic pricing is right for your business, consider these questions:
Is your capacity relatively fixed?
Is your demand predictable?
Is your inventory perishable?
Are your fixed or sunk costs significant
compared to your variable costs?
Does demand vary by time?
If you answered 'yes' to at least four of these questions, dynamic pricing may be right for your business. If you answered 'no' to two or more of the questions, dynamic pricing may still be the right choice for your business depending on your market.
