How dynamic pricing is changing the marketplace

Elements of price variations 

Businesses use advanced algorithms and data analytics to monitor and analyze factors such as customer demand, competitor pricing, inventory levels, and market conditions. In a flexible pricing model, you can the adjust prices frequently and flexibly, often multiple times a day, to reflect the current market situation. Prices may also vary based on different customer segments, such as loyalty status, purchasing history, or geographic location. And then there are external factors to be considered as well, like seasonality, or even weather conditions. 

How The House of Marketing helps you with dynamic pricing  

Dynamic pricing: how do you go about it? Our approach starts with these 5 steps: 

Step #1: Conduct price research and differentiate target groups 

Start by understanding the value your product or service offers and assessing the willingness to pay across different customer segments. Some groups are highly price-sensitive, while others are willing to pay a premium. It’s crucial to identify these segments and tailor your pricing strategies accordingly. 

Step #2: Identify the key factors for price adjustments 

Determine the primary factors on which you will adjust prices. Perhaps you want to provide certain customer groups access to specific products, like lower admission prices for a theme park in the low season? Carefully choose the factors that will drive your pricing strategy, ensuring they are acceptable to your customers. 

For example, in some US cities, the Coca-Cola Company installed vending machines that adjusted prices based on weather conditions. The hotter it got, the more expensive a (can of) coke became. This infuriated customers, as the ‘weather’ factor was beyond their control. Other factors are more accepted: consider a bar or restaurant offering Happy Hour prices during less busy times. An approach like this allows customers to influence pricing through their behavior, which is generally more acceptable and appreciated.  

Step #3: Run simulations  

Conduct simulations to understand the impact of transitioning from static to dynamic pricing. For instance, Uber uses dynamic pricing to increase fares during peak times. This strategy benefits both the company and the customers by ensuring that more drivers are available during high-demand periods, such as events or concerts. By simulating such a price increase, you can predict customer behavior and refine your pricing strategy. 

Step #4: Invest in appropriate technology 

When implementing intricate dynamic pricing strategies, the tools you choose are crucial. Consider a tent producer operating across two seasons. While simple pricing adjustments can be managed using Excel, specialized dynamic pricing software like SYMSON becomes essential for more frequent changes. Price-scraping modules scan the market for competitor prices, allowing adjustments based on rules like undercutting competitors by a set percentage. 

Step #5: Craft effective marketing and communication strategies 

It’s essential to convey the benefits and mechanics of dynamic pricing, outlining how customers can leverage it to their advantage. Whether through promotions, loyalty programs, or transparent pricing structures, ensure customers understand how they can access/benefit from lower prices. Avoid terms like “surge pricing,” which may carry negative connotations, and instead opt for more positive and relatable terms like “Happy Hour pricing.” Take inspiration from Disney, who actively informs customers about off-peak pricing periods, fostering transparency and trust.