10 Benefits of Dynamic Pricing for ECommerce Businesses

Posted by Prospero Team | March 28, 2024 | All, Business

Few things contribute more to a successful business than a pricing strategy. 

Having the best product is no longer enough. Smart companies are implementing strategies where prices fluctuate in real-time. Everything from the time of day to competitor activity is what drives these fluctuations.

When things get busy, prices might go up a tad, and when it’s quiet, they might drop a bit. It’s all about staying flexible and keeping up with the flow.

Now, why does this matter so much for online shops? Well, picture this: the internet is like a gigantic marketplace where everyone’s competing for attention. Having the right pricing strategy is like having a secret weapon. It helps you stand out, attracts customers, and keeps them coming back for more. 

What is dynamic pricing?

There are a few different names for dynamic pricing: surge pricing, demand pricing, and time-based pricing. In this approach, businesses adjust their prices according to what customers want at any given time. 

A simpler explanation would be that this is a pricing strategy where product prices constantly change. Time frames ranging from minutes to days are possible, depending on the market in question. 

How does it work?

Image sourced from Devesh Sharma – LinkedIn

Imagine you own an online store selling T-shirts. You decide to set a fixed price of $20 for all T-shirts, regardless of factors like demand, competition, or time of day. So, whether it’s a busy weekend or a quiet weekday, the price stays the same.

Now, let’s switch gears to dynamic pricing. 

With dynamic pricing, you monitor various factors like customer demand, competitor prices, supply chain demand forecasting, and even the weather. Let’s say you notice that it’s a scorching hot day and everyone is rushing to buy T-shirts. 

You decide to bump up the price a bit to $25 to capitalize on the increased demand. Conversely, on a chilly, rainy day when fewer people are shopping, you might drop the price to $15 to entice more buyers.

The key difference between static and dynamic pricing boils down to flexibility. Static pricing offers consistency but lacks adaptability to market changes. On the other hand, dynamic pricing allows you to adjust prices in real-time, maximizing profits during peak demand and staying competitive in fluctuating market conditions.

Benefits of dynamic pricing for eCommerce

Approximately 21% of the North American and European e-commerce companies surveyed in 2021 reported using dynamic pricing. A whopping 63% of people who took the survey have either already implemented dynamic pricing or are thinking about doing so.  

Image sourced from Statistica

It’s clear that interest in dynamic pricing is growing, and the benefits listed below are driving its adoption.

  1. Make more money

With dynamic pricing, you can change prices on the fly based on what people are willing to pay. So, when demand goes up, you can charge a bit more, and when it’s slow, you can drop prices to attract more buyers.

  1. Stay ahead of the game

Being an online seller means fighting to stay ahead of the game. Dynamic pricing helps you keep up by adjusting your prices to match or beat your competitors’. 

With dynamic pricing, you can react quickly to changes in the market, like a competitor lowering their prices or a sudden surge in demand for a particular product. This flexibility helps you stay competitive and maintain your edge.

  1. Keep customers happy

Pricing inconsistency can be a real turn-off for customers. 

Imagine if you walked into a store and saw the same item priced differently every time. Not cool, right? Dynamic pricing makes sure your customers get fair and consistent prices based on what makes sense for them.

Plus, by offering personalized pricing based on factors like purchase history or location, you can make your customers feel valued and keep them coming back for more.

  1. No more overstock or empty shelves

It can be hard to keep track of your inventory, but dynamic pricing can help you do it right. You can avoid having shelves full of unsold goods or running out of popular items when demand is high by changing prices based on inventory levels and demand forecasts. Studies show that dynamic pricing can cut up to 40% of wasted products for businesses.

Image created with Canva – Statistic sourced from nocamels.com

  1. Use data to make smart choices

Dynamic pricing is all about using data to make informed decisions. By analyzing sales data, market trends, and customer behavior, you can see what’s selling well, what people are willing to pay, and adjust your prices accordingly. It’s like having a crystal ball that tells you exactly what to charge.

  1. Avoid price goofs

We’ve all been there, accidentally pricing something too high and scaring off customers, or pricing it too low and leaving money on the table. Dynamic pricing systems help prevent those embarrassing moments by automatically adjusting prices based on predefined rules and real-time data. That way, you always hit the sweet spot.

  1. Offer discounts and promotions

Dynamic pricing isn’t just about raising prices when demand is high; it can also help you offer discounts and promotions to attract customers during slow periods. By identifying opportunities to lower prices without sacrificing profitability, you can boost sales and maintain a healthy cash flow.

  1. Adapt to seasonal trends

With dynamic pricing, you’re not stuck with the same prices year round. When it’s the holiday season or there’s a big event happening, you can adjust your prices to match the excitement. That way, you can take advantage of seasonal trends and make sure you’re offering the best deals when people are ready to spend.

  1. Supercharged marketing strategies

Dynamic pricing goes hand in hand with your marketing efforts. You can use it to run special promotions or discounts that align with your marketing campaigns. By coordinating your pricing and marketing strategies, you can create a buzz around your products and attract more customers.

  1. Flexible pricing models

Dynamic pricing offers flexibility in implementing various pricing models to suit your business goals and target audience. You can try surge pricing during peak hours or tiered pricing based on quantity or membership levels. Dynamic bundling of products is another great option.

Experiment with these different pricing strategies to find what works best for your eCommerce business and customer base.

When is dynamic pricing unfair to customers?

Dynamic pricing can be considered unfair to customers in certain situations. Only 34% of respondents in one study believed that consumers could benefit from dynamic pricing. 

Image created with Canva – Statistic sourced from Capterra

  • Lack of clarity: Customers may think it is unfair if they think prices are changing randomly and without a good reason. In dynamic pricing, it is important to be clear about why prices change so that customers can trust the system.
  • Price discrimination: When prices change based on things like location, browsing history, or buying power, some customers may be charged more than others. This is called price discrimination. Customers may not want to do business with you again if they think you are targeting them unfairly.
  • Exploitative practices: If dynamic pricing is used to exploit customer urgency or lack of information, it can be seen as unfair. For instance, it might be seen as unethical to drastically raise prices during emergencies or make it harder for people to get essential goods based on their ability to pay.
  • Inconsistency: If prices are different across channels or groups of customers, it could seem unfair. Price differences between similar products can hurt trust and loyalty because customers expect prices to be fair and consistent.
  • Manipulative tactics: Using manipulative tactics, like falsely raising prices before discounting them to make it look like buyers are saving money, can be seen as dishonest and unfair.

Tips for using dynamic pricing responsibly

  • Be transparent: Let your customers know that you use dynamic pricing and why. Being upfront builds trust and avoids any surprises at checkout.
  • Leverage technology. To use dynamic pricing, you need strong technological capabilities that can handle changing prices in real time. Data analytics, ML, and market intelligence all contribute to achieving this. Technologies such as drift machine learning can help businesses detect changes in market trends and customer behavior, allowing for more accurate and responsive pricing strategies.
  • Keep it fair: Avoid price discrimination by ensuring everyone gets a fair deal. Don’t base prices on factors like a customer’s browsing history or demographics.
  • Stay consistent: Try not to change prices too frequently or drastically. Consistency helps customers feel like they’re getting a fair shake.
  • Watch for backlash: Pay attention to customer feedback. If people start complaining about your prices feeling unfair, it might be time to reevaluate your strategy.
  • Use discounts wisely: Instead of always raising prices, consider using discounts to reward loyal customers or attract new ones. It’s a win-win for everyone.
  • Track and analyze performance: Use monitoring tools to see how dynamic pricing affects sales and customer satisfaction. To keep improving the dynamic pricing strategy, you must consider performance, customer feedback, and eCommerce market trends on a regular basis. 

Remember, dynamic pricing is a powerful tool when used responsibly. Not surprisingly, the revenue management market, which includes dynamic pricing, is expected to reach $22.4 billion in 2024. 

Image created with Canva – Statistic sourced from Report Linker

Just keep your customers’ best interests in mind when adopting dynamic pricing, and you’ll do great.

The future of pricing

And that’s a wrap on dynamic pricing!

By tweaking prices based on demand, competition, and other factors, you’re not just boosting your bottom line—you’re also staying ahead of the curve in the fast-paced online marketplace. 

So, why not give it a shot?

With a bit of experimentation and a customer-focused mindset, dynamic pricing could be the key to unlocking sustainable growth and taking your eCommerce business to the next level. 


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