Dynamic pricing is a pricing strategy that aims to find the optimum price of a given product at any time. Price monitoring software is often used for this purpose to monitor competitor’s prices, as well as market trends, in order to set a competitive price.
It can be easy to see why this would be beneficial to retailers, but what about customers? Is dynamic pricing good for your customers? Many would argue that dynamic pricing doesn’t benefit most customers, especially in relation to inelastic demand. However, dynamic pricing is, by nature, a race to offer the most attractive price to the consumer. As such, this typically increases competition and drives prices down.
Read on to learn more about dynamic pricing, and how it impacts the consumer.
Is Dynamic Pricing Good for Customers?
Dynamic pricing can be good for customers if the retailer understands its customers. Dynamic pricing will never be good for customers of luxury brands where the high price is not only expected but valued. However, a dynamic pricing strategy may be a good thing for e-commerce customers as the competition can drive prices down across the industry.
That said, customers have to understand, and accept, a dynamic pricing strategy for it to work. Companies like Uber, Amazon, and travel agents successfully operate dynamic pricing, but their customers not only know to expect fluctuations in price, but accept it. This will not be the case for all retailers, and may only work if pricing is in the customer’s favour.
To encourage customers to accept a dynamic pricing strategy, the Wall Street Journal recommends transparency about pricing criteria. Customers may be far more understanding and accepting if they know what influences the price of your product or service.
Do Consumers Like Dynamic Pricing?
Customers may like dynamic pricing when it’s to their advantage; i.e. when competition, and a race to the lowest price, drives industry prices down. Although, in most cases, it’s probably less actually liking dynamic pricing, and more understanding and tolerating it. Where it seems unfair, or unethical, customers are highly likely to dislike a dynamic pricing strategy, and could avoid your business as a result.
How Does Dynamic Pricing Help Customers?
The only scenario where dynamic pricing helps customers is when it creates a race to the lowest price, lowering prices across the industry. In reality, dynamic pricing is of more benefit to the retailer who has the potential to maximise profits.
Whether customers will likely be less impacted than those with more limited funds who, as such, may choose to wait until prices lower, shop elsewhere, or not shop at all.
How Effective is Dynamic Pricing in Business?
According to QuickBooks, dynamic pricing strategies can help businesses to see sales growth of 2-5%, and an increase in profit margins of 5-10%.
Dynamic pricing helps businesses to set prices based on real-time changes in market trends, or competitor prices. It allows businesses to stay competitive and, in some cases, get ahead.
What are the Pros and Cons of Dynamic Pricing?
Pros of Dynamic Pricing
- Set real-time prices based on industry, market, and competitor changes
- Saves you money in the long run. With price monitoring software, you don’t need to spend time or money on further market insights
- Grow your business with profit margins of 5-10%
Cons of Dynamic Pricing
- Customers may get frustrated with fluctuating prices
- The competitive nature of dynamic pricing can lead to price wars where prices across the industry drop to unsustainable levels. Although, customers may respond to this
- Customers may consider dynamic pricing to be unfair, especially where it is based on demographics and psychographics
Price Monitoring Software at Price Trakker
Price Trakker offers price monitoring software that can help you set a dynamic pricing strategy, and gain a competitive edge. Our software, PriceTrakker-QL, provides automatic price changes in response to real-time supply-demand and market elasticity, in line with your predetermined margin rules.
Learn more about dynamic pricing with Price Trakker online, or arrange a demo and consultation with our price monitoring experts. Alternatively, if a dynamic pricing strategy isn’t for you, learn how to optimise your pricing strategy to get the most out of it in our recent blog.