Dynamic pricing is a strategy where companies continuously adjust their prices in response to market conditions.
Factors driving these changes vary by company, but typically encompass: demand and supply dynamics, competitor pricing, seasonality, market positioning, production and/or distribution costs, among others.
Amazon stands as a prime example of dynamic pricing done right. The retail giant has devised an intricate internal mechanism that monitors competitor pricing, weighs myriad factors, and recalibrates over 2.5 million product prices daily based on optimal price-demand correlations.
No one can dictate whether a lower or higher price point will elevate your profits without testing its impact on your online store's sales. That's why dynamic pricing heavily leans on extensive historical data analysis.
Embarking on dynamic pricing requires an upfront investment in terms of effort, but the payoff is substantial down the line. Companies end up with a finely-tuned forecasting system for optimal prices and sales volumes, furnishing a significant edge over competitors.
Market leaders have long grasped this and actively harness this pricing method. According to Bain & Company
, the industry frontrunners across various sectors are almost twice as likely to employ dynamic pricing.