Category / Pricing Strategy

How Dynamic Pricing Works: Examples, Benefits, and More

Ecommerce is a competitive market—it's time to use that to your advantage with dynamic pricing. A fixed pricing model means you set your prices once and just hope for the best. But a dynamic pricing strategy gives you the power to bend and adapt with the market so you can price your products competitively to […]

April 22, 2022 / 7 min read

Chad Rubin

Founder & CEO

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Ecommerce is a competitive market—it's time to use that to your advantage with dynamic pricing.

A fixed pricing model means you set your prices once and just hope for the best. But a dynamic pricing strategy gives you the power to bend and adapt with the market so you can price your products competitively to maximize profits.

Dynamic pricing means you can remain nimble in the face of market changes, adjusting who you're selling to and how much you're selling for to increase sales, basically on demand.

And the benefits go deeper than just boosting sales numbers.

Ready to take a closer look?

What is dynamic pricing?

Dynamic pricing uses supply and demand factors to set prices for goods or services on a situational basis. In other words, dynamic prices can go up or down based on changes in the market. This makes dynamic pricing an exceptional tool for ecommerce businesses who want to increase their profits on auto-pilot.

4 main benefits of using dynamic pricing

Dynamic pricing can have a huge impact on your business if you do it right. Here are the four main benefits of dynamic pricing.

1. Increased sales

Dynamic pricing helps companies sell more products because they can adjust to market behavior. For instance, you can reduce your price when you want to increase demand, but you can increase your prices when the sales are soaring. These adjustments will help you maximize revenue and profit by increasing the number of sales you make

2. Maximize profits

Dynamic pricing can also be used to help companies identify areas they could be making more money from. Analytics software can help ecommerce owners determine when to sell certain products and for what prices. By using analytics software, it is possible to determine which products are being sold at what times and for what prices. These insights can then be used by businesses to set their prices strategically.

3. Lower Advertising Cost of Sale (ACOS)

If you run ads for your Amazon products, you want to maximize every penny you put into paid campaigns. In theory, it can all work very nicely. In practice, however, you might end up with customers clicking on your ad (and thus, allowing the platform to charge you for it), but not buying anything.

Dynamic pricing can help lower your ACOS by ensuring that your ads are always relevant and competitively priced.

4. Improve return on spend

By using dynamic pricing, you can ensure that every sale you make is at the highest price possible in the given context, for the price you have paid for the product when you stocked up. Dynamic pricing allows you to sell out-of-stock items at a premium. If there is high demand for an out-of-stock item, then why not take advantage of this by raising the price until new stock arrives? You might find that many customers are willing to pay even if they weren't before.

3 examples of dynamic pricing in action

Here are a few examples of how dynamic pricing works in the real world.

1. Airlines

Many airlines use dynamic pricing to determine ticket costs based on factors such as time of day and flight availability.

For example, let's say an airline charges $500 for a flight from New York to Chicago. Demand is high and the airline books all the seats. The airline then cancels the flight, buys a second plane and sells tickets for $1,000 each, filling all of its seats again.

One could argue that the airline could have sold the original flight at $800 or even $900 and filled both planes. But this raises questions — how many people would have been willing to pay $900? How many were willing to pay only $500? And how would the airline know?

Dynamic pricing is one way to deal with these challenges.

2. Ride-share apps

Uber and Lyft are among the first companies to use dynamic pricing to adjust their prices based on supply and demand. When more drivers are available, rides are cheaper. When there's more demand than drivers, fares increase. When there’s less demand than drivers, fares decrease.

3. More recently, ecommerce brands

Ecommerce companies are also beginning to experiment with dynamic pricing strategies. Many of these involve changing prices based on time of day, day of week or time of year. Using dynamic pricing, retailers can raise or lower prices based on market conditions and availability, like when a competitor runs out of inventory.

How to implement dynamic pricing using Profasee

Profasee’s dynamic pricing software enables Amazon brands to predict the perfect price at each precise moment. Here’s how to implement it.

Instantly integrate Profasee with your Amazon Account

Our dynamic pricing software integrates with your storefront’s products with just a few clicks. This makes the process easier and allows you to focus your attention on other aspects of optimizing your Amazon store.

Dynamically predict the optimal price

Our intelligent pricing algorithm analyzes millions of data points to surface real-time insights and dynamic pricing recommendations. We take into account all the variables that impact sales velocity to recommend the best price for your products.

Use pre-configured pricing models

To help you get started, we’ve built a number of pre-configured pricing models for different use cases. These models can be applied to your entire product catalog at once, or individually on each SKU. Furthermore, they are designed to help you hit certain business targets based on the data we collect from your store.

Adjust pricing to each customer’s ability to pay

Imagine you could look into your customer’s pocket, and see how much they have. And then, based on that information, you automatically adjust your pricing to maximize the amount of money they spend at your store.

That’s exactly what Profasee's dynamic pricing tool does, but it doesn’t require any psychic powers. Instead, Profasee uses a powerful combination of technology and science to accurately determine a customer’s ability to pay — and then automatically adjusts your prices accordingly. This will help you grow your revenue, margin performance, and profitability. As Profasee dynamically delivers the optimal price to each customer, you’ll see your revenue, margin performance, and profitability grow.

Ready to set up dynamic pricing?

Get ready to embrace an automated dynamic pricing strategy done right. We can help, regardless of how familiar you are with dynamic pricing.

Dynamic Pricing FAQs

What is a dynamic pricing strategy?

A dynamic pricing strategy, also known as surge pricing, is a pricing strategy in which businesses set flexible prices for products or service based on current market demands. Businesses are able to change prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors in the market.

Why is dynamic pricing important?

Dynamic pricing provides organizations with increased revenue opportunities by enabling them to charge prices that more accurately reflect current supply and demand conditions. By utilizing dynamic pricing strategies, organizations are able to reduce costs associated with overproduction or underproduction because they can respond to shifts in demand more quickly than if they had set fixed prices.

What are the different types of dynamic pricing?

There are several different types of dynamic pricing, each of which is used to meet different goals. For example, some forms of dynamic pricing are designed to maximize profits, while others are intended to increase demand or even keep customers from switching to a competitor.

Chad RubinFounder & CEO

Chad Rubin leads Profasee's operations and oversees its strategy. He often speaks about e-commerce, amazon and leveraging AI strategies on webinars and conferences worldwide. He's also the author of the Amazon bestseller, Cheaper, Easier Direct. Prior to Profasee, he founded Think Crucial and co-founded Skubana, and the Prosper Show. He is also a father, husband and loves coffee and tacos.