Definition: Dynamic pricing is a flexible pricing strategy where the price of products/services changes based on various factors, particularly market demand.
Key Feature: The price changes frequently rather than being fixed for longer periods like a day, week, or month.
Determinants of Dynamic Pricing
Market Demand: The level of demand compared to the availability of supply.
Customer Location: Geographic location of the customer.
Time Considerations: Time of day/night and day of the week.
Competitor Prices: Prices charged by competitors for the same or similar products/services.
Customer Buying Journey: How long a customer has been searching for a product and the immediacy of their purchase need.
Role of Data
Big Data: Dynamic pricing relies heavily on big data, capturing vast amounts of transactional data globally.
Algorithms: Computer programs and algorithms process the data to determine prices.
Objective: Aim to maximize revenue through optimal pricing.
Industries Using Dynamic Pricing
Hospitality: Hotels change prices based on time of day, day of the week, and demand/supply availability.
Transportation: Examples include train fares and ride-sharing apps like Uber.
Uber’s Surge Pricing: Prices increase when demand for rides is particularly high.
Retail: Prices displayed electronically and modified based on factors such as weather and product demand/supply.
Conclusion
Dynamic pricing is increasingly used in various industries as part of the market mix.
It enhances revenue by adapting to changes in demand and other influencing factors.
The relationship between big data and pricing decision-making is crucial for the success of dynamic pricing.