Introduction

Dynamic pricing can also be referred to as surge pricing or time sensitive pricing which is another type of pricing technique where the firm sets up the price of products or services in a certain period depending on certain factors like demand and supply. This is different from the fixed pricing technique wherein prices are set and maintained for some time. Technological advancement and data availability have made this method known as Dynamic Pricing.

The problem of pricing is rather sensitive in any organisation or business undertaking. With a precise impact on a firm’s revenue and its profitability it also has a direct impact on two points of interest including the top line often referred to as gross revenue and the bottom line referring to profit. 

Dynamic Pricing As A Concept

Dynamic pricing is another pricing strategy whereby a fixed price does not drive the price of a given product service. Rather it is adjusted according to market forces such as demand competition market scenario and even the customer type. The four types of dynamic pricing strategies are as follows they are customised depending on the business requirement in a particular market environment.

Types of Real Time Pricing Techniques

Time Based Pricing

They are the time based price and the seasonal based price. For instance during the rush hour or season call centres and other service providers such as hotels and airlines tend to have a higher price.

Market Driven Pricing

The costs or the prices are sensitive to the market conditions and the price of the competitors. This strategy is widely used by many ecommerce firms that are trying to create a market for themselves.

Customer Driven Pricing

With regard to price it is flexible and depends on the buyers and their buying involvement may be sparked by price. This strategy seems to be traditional for online stores where the algorithm’s task is to find the maximum price that a client is willing to pay.

These strategies intersect with conventional pricing methods that work with fixed long term prices that are typically determined with the help of matrices with cost plus or value added models. Dynamic pricing thus enables a firm to be on the lookout and respond when there are new competitors or when some of the factors of production cost shift.

Technological advancements and dynamic pricing

Today’s dynamic price setting has been eased with the use of big data artificial intelligence and machine learning. With the help of this technological advancement there are faster ways of collecting data. Also faster ways of sorting such data and therefore firms are in a position to make the right pricing decisions most especially within the shortest time possible.

Big Data and Analytics

Their Place makes extensive use of textual content in conjunction with graphic text located in the upper portion of their website to display their range of services. Some of the aspects that can be analysed through big data include customers behaviour analysis trends and competitors prices among others.

This form of data can be subjected to a more sophisticated level of analysis in order to determine the sort of patterns or even future needs of a product for a business thus helping that business make a cheap bargaining approach in the best pricing strategy.

Application of Artificial Intelligence

AI and machine learning can also deliver the process of dynamic pricing adaptation and work it out based on the current data. These technologies are useful in identifying factors such as the cost of products offered by the competitors the available stock and even the customers tendencies hence the best strategies to adopt when pricing. 

Effects of the Internet

The IoT extends the opportunity to gather even more specific information from the connected devices and get an immediate accurate understanding of customers actions and market states. This data can be used to make immediate price revisions in order to have the prices touch the stream of the market. 

Case Studies 

Some examples of dynamic pricing that are in use nowadays are Every from Amazon and surged from Uber where companies use technological systems to determine the prices that are most effective to charge. Amazon practises what is commonly known as echelon pricing which involves changing the prices of products as often as every few hours.

Surge pricing is another pricing strategy used by Uber which determines the supply and demand principles during a specific working day and indicates how many times higher than the base price a car could be ordered during high demand. Dynamic pricing is used in different industries which makes each of the industries different from the other due to their problems and opportunities. 

Ecommerce 

In the context of ecommerce dynamic pricing strategies are practised to be more relevant in the market. Shopping websites can frequently update prices depending on the actions of competitors consumers and changes in the market. Smart strategies allow for the variation of prices and provide customers with unique pricing that will result in higher total sales and a higher level of customer satisfaction. 

Airlines and Hospitality 

Many industries such as airlines and hotels have adopted dynamic pricing to control their stock and cash flows. It is common for the tickets and hotel prices to depend on the time of the booking and demand and supply factors. For instance one will have to book a hotel at very short notice or during the festive season and will be charged more. 

Ride Sharing Services 

Companies like Uber and Lyft always apply dynamic pricing supply and demand in the market. In normal circumstances the rates charged are relatively high during peak times of the day or poor weather conditions as a way of attracting more drivers to work and earn more income. 

Entertainment and Sports 

Prices for tickets to events that involve music artists sports theatres and other related events are dynamic prices. It may rise near the date of occurrence or when the demand for a commodity is higher than its supply. There is a way to maximise the revenues and thus guarantee that the tickets will be sold for the maximum possible price. 

Retail Industry 

In intangible stores dynamic pricing is employed to change prices according to specific features such as competition stock status and consumers. He called on retailers to employ virtual and mobile price labels and Web Based selling portals to apply dynamic pricing. 

Dynamic Pricing Success Stories 

Many companies from these industries have reported a high level of success in the implementation of dynamic pricing strategies. For instance Disney has been selling tickets to its theme parks at fluctuating prices depending on the day and the perceived demand. This approach has assisted the company in controlling overall attendance and at the same time has maximised revenue return. 

Customer Behaviour and Price Sensitivity 

The investigation of consumer behaviour is a significant precondition for the effectiveness of dynamic pricing. Managers need to find out how changes in prices influence the level of customers satisfaction loyalty and their overall perception of the issue of equity. 

Understanding Consumer Psychology 

Consumer psychology is very relevant to the implementation of dynamic pricing strategies. Pricing polymorphism may lead to various customer dissatisfactions whereby the customers may be put off by what they consider to be frequent and unfair changes in prices by the organisation.

On the other hand when deployed with full disclosure and done ethically the concept of dynamic pricing will not only help in the provision of suitable and reasonable prices for customer needs. Still it will also help to improve their experience when they are being served. 

Effects of Dynamic Price on Customer

There is evidence showing that with dynamic operating decisions the revenue can be increased but on the same note customer satisfaction is reduced. Customers may feel sidelined if they understand that they are being charged differently from other individuals or that the prices of goods keep on varying. To manage this risk it becomes necessary for businesses to justify why prices have had to be changed and be very open. 

Ethical Considerations in Dynamic Pricing

Dynamic pricing is not without ethical dilemmas the most significant of them being that of price discrimination. Business people though operate under the general business objective of revenue maximisation however pricing discriminately attracts ethical consideration. In doing so it is necessary to guarantee that contemplated pricing policies are reasonable and not deceptive. 

Transparency and Consumer Trust 

This makes it important for consumers to understand why such strategies as dynamic pricing are used in the market and this can only be done by displaying all the information required for consumers to understand why such a strategy is being used. Managers should put strategies in place that explain to the customers the causes of changes in prices so that customers can understand why the prices have changed. Such an approach might be useful in the reduction of unfavourable impressions and promotion of customer retention. 

Pros & Cons of Dynamic Pricing 

Still dynamic pricing has a variety of opportunities and advantages as well as some threats and risks connected with the usage of this concept by different business types. 

Price Discrimination Concerns 

Another major issue that can be associated with dynamic pricing is that of unequal price discrimination whereby customers of similar needs for a particular product or service are charged different prices. It is a practice that has some legal and ethical implications especially when customers harbour the feeling that they are being wronged. 

This system entails changing prices from one moment to the other and they are very sensitive to changes in demand and supply factors. Such fluctuations may lead to consumer outrage especially when the buyer captures a feeling that the hike in prices is licking their back. 

Operational Challenges 

Dynamic pricing has to be supported by advanced technologies and efficient use of data to be successful. It entails the need to make the right investments in the infrastructure to support the realtime collection and analysis of data which is costly and challenging. Further it is important for businesses to correct their prices from flickering since it tends to harm a business’s reputation due to wrong prices set by the algorithms.

Regulatory and Legal Implications 

Dynamic pricing can also pose legal and regulatory problems such as price discrimination antitrust laws and consumer rights. Indeed correct pricing strategies have to be compatible with legal requirements and legislation to protect business enterprises from legal action and penalties. 

Strategies Adopted by the Organisation 

The problem of dynamic pricing can be managed and controlled using several measures including the establishment of maximum and minimum prices the employment of analytics to predict and determine market trends and the constant evaluation and revision of prices. 

Problems Associated with Dynamic Pricing

However there are numerous advantages that dynamic pricing brings to the table which can greatly improve the performance of a business. 

Revenue Optimization 

Revenue productivity is one of the leading advantages of dynamic pricing for a number of reasons. This means that based on the realtime conditions in the demand and supply firms are able to achieve the maximum amount of revenue possible. Dynamic pricing is a helpful way to maximise the price that consumers are ready to pay and reach the maximum level of profit. 

Better Inventory Management 

Dynamic pricing also plays an important role in demand management but also in stock management. Since products can be priced according to inventory sellers can be certain to create the best value for their goods while at the same time they are not stuck with stocks or having too much stock which is not desirable. 

Competitive Advantage 

In the world of cut throat competition dynamic pricing has become a major advantage today for any business. When change occurs businesses need to respond accordingly by not only changing their prices but also adjusting to prices set by competitors so as to secure their market foot hold and enshrine customer loyalty. 

Market Sensitivity 

Dynamic pricing on the other hand gives businesses the advantage of adjusting to market changes in real time. This preparedness enables the firms to seize new opportunities and manage any threats that may arise in the business environment hence enabling them to remain relevant in the significantly volatile environment. 

Illustrations of the Hikes in Profit

The case of dynamic pricing has been proven to elevate profitability among the several companies that have employed it. For instance Amazons flexible pricing approach has kept its prices and revenues high making it the worlds leading online retailer. 

Future of Dynamic Pricing 

Trends in Dynamic Pricing are a key analysis of the future of dynamic pricing driven by trends and innovations across industries.

Emerging Trends and Innovations 

The following trends are seen to redefine dynamic pricing in the Future Artificial intelligence and Machine learning Personalisation and Customer experience. These tendencies are creating new perspectives for the development of the methods of forming the price allowing for the offer of more individual and flexible nuances of the price. 

Dynamic Pricing and Personalization 

Thus personalization is the key to the focus of dynamic pricing. Since customer data and analytics have become achievable objectives for many companies the opportunities for personalised pricing strategies are more widespread. This approach increases the satisfaction and loyalty of customers hence increasing the long term revenue of the business. 

Outlook of Pricing Strategies 

The authors have discovered that pricing strategies are a complex and dynamic aspect of the MNE that will continue to develop due to advancing technology. AI ML and RTDA will also be used to improve the application of pricing strategies for businesses from the current levels to much higher levels hence increasing their profitability and competitiveness. 

Consumer data

Consumer information is a valuable resource in the era of big data which is particularly important for companies adopting dynamic pricing models. From the consumers perspective the World Wide Web and other platforms generate huge amounts of data on consumer interactions and this data can be used to make detailed nuances in adaptations to the models of pricing strategies. 

Sources of Information

Businesses gather data from various sources including

Purchase History

The history of past purchases reveals people’s consumption habits and can be useful for companies. For example if a buyer usually makes purchases during promotions a firm can increase the price of products in its attempts to earn as much as possible from that customer. 

Browsing Behaviour

It monitors how consumers browse through certain commodities the time they spend on a particular product and whether they have selected certain products for purchase. The data enables one to anticipate what the customers might be interested in and the amount they might be willing to spend. 

Social Media Activity

Consumer behaviour can be ascertained from social media and the same information can be used to change prices as and when required. 

Competitor Pricing

Companies are keen on tracking their competitors actions in relation to price in realtime. This assists in the determination of their prices so that they are cheap to market standards and thus satisfy consumers. 

Price sophistication and Predictive Analytics 

Predictive analytics is very important in dynamic pricing as it helps in making future predictions of demand and hence setting the right prices. Historical records such as sales history trends and cycles as well as other environmental factors such as economic factors can be used to forecast future demand by the use of the algorithm. 

The price optimization models employ these data to define the right price at which the enterprise can deliver its products and services. At the same time it maximises customer attraction and penetration. These models can calculate what if options including what happens if a price is increased by 5% or if a competitor slashes his prices by 10%. 

Psychological Aspects of Dynamic Pricing

Pricing is not only an economic function it is equally psychological. The way consumers regard price can determine their behaviour in the marketplace. Awareness of such psychological factors is critical when firms use dynamic pricing models as we will see next. 

Another psychological phenomenon that is linked to dynamic pricing is loss aversion. In other words consumers are characterised by loss aversion in the sense that they are relatively more responsive to threats of loss than to gains of equivalent value. In pricing this signification is that the consumer is likely to respond adversely to an increase in price than to a decrease in price. 

Risk of Price Volatility 

The key disadvantage of dynamic pricing is a high level of price fluctuation which may be dangerous for a brand. In essence when consumers have an impression that a brand’s price is unpredictable it affects their credibility. This is especially the case where firms are located in industries where price fluctuation is less desirable than in industries such as the health industries or education industries. 

Conclusion 

Price change is a practice that suits the modern market where companies get an opportunity to operate flexibly adapt to various changes in the market and increase overall revenue while gaining a competitive advantage. However it also includes several difficulties and threats such as the ethical side and consumer trust. With more growing advancements in business and improvisation of their efficient pricing strategies.

Dynamic pricing is expected in future to be more determined by evolving technologies individualization and perceived fairness. Understanding both the commercial benefits and the social implications of this way of setting prices helps to unleash the potential of dynamic pricing as a strategy that will give a competitive advantage to a business and make it more sustainable in the long term.