What is Dynamic Pricing?

Your company’s financial success strongly depends on the price you’re charging for your product. If your price is too low, your sales won’t cover your production costs. But if you charge too much, nobody is going to buy your product in the first place.

Finding that sweet spot is difficult. But what’s even more difficult is keeping your prices in line with the ever-changing market you’re operating in. Because the sweet spot of today won’t be the same as the sweet spot of tomorrow.

Whether it’s a new competitor shaking up the landscape with bottom prices or a sudden surge in product demand due to real-world events. In today’s dynamic digital space, you can’t afford to keep your prices static.

And that’s where a pricing strategy like dynamic pricing can come in handy.

What is a Dynamic Pricing Strategy?

Strategy for Dynamic Pricing

Dynamic pricing is defined as the practice of adjusting the pricing of goods or services in response to fluctuations in supply and demand.

Instead of keeping your prices the same at any given time, this strategy suggests you review and adapt pricing in line with current events.

Traditionally, dynamic pricing is used in the ticket-selling industry. From tickets for basketball games to music concerts to airplane tickets. Ticket sellers often increase their prices the moment they realize there is high demand while lowering them again if there is low demand.

But nowadays, a dynamic pricing strategy is no longer just reserved for ticket sellers. E-commerce businesses like Amazon, for example, have started implementing the same type of pricing strategy for the products they sell. And they’ve taken it even further.

Instead of just checking demand, they’ve started using big data to base their pricing on a vast amount of factors. From analyzing product reviews to taking real-world events into account, to comparing the prices of every competitor and retailer out there.

By analyzing big data, these companies have taken the dynamic pricing strategy to the next level. And your business can join in on the action as well! But first, let’s have a look at some alternative pricing strategies.

Other Common Pricing Strategies

There are many ways to determine what price to ask for your product. Which strategy works best for your business will depend on your company and the space it’s operating in.

Common pricing strategies are:

Cost-Plus Pricing

Cost-Plus Pricing

This is arguably the most basic pricing strategy out there. Your price is determined by calculating your total cost to make the product and adding the margin of your choice that you want as profit per product.

Competitive Pricing

Competitive Pricing

As the name suggests, this pricing strategy involves looking at your (main) competitors and determining your price accordingly.

Penetration Pricing

Penetration Pricing

This is mostly done by new businesses entering the market. You start with a (very) low price compared to your competitor to tempt customers into trying your product instead. As soon as your customer base and brand reputation increase, you can start to increase your prices.

Price Skimming

Price Skimming

This is more or less the opposite of penetration pricing. In this case, you start with a high price and then adjust your price over time depending on market fluctuations.

Value-Based Pricing

This is often considered the most “fair” type of pricing and what pricing would look like in an ideal world. Value-based pricing basically means setting your price based on how much your customers believe your product is worth.

Value-Based Pricing

All of these pricing strategies are used by businesses around the world. And depending on the industry you’re operating in, one strategy might be a better solution than the other.

But if you’re in a highly competitive, saturated landscape – as more and more industries are – chances are a simple cost-plus pricing strategy just isn’t going to give you that competitive edge.

Instead, for most online businesses, dynamic pricing is the way forward.

How to Implement Dynamic Pricing

Implement Dynamic Pricing

So how can you start implementing a dynamic strategy for your business? Or, more importantly, how can you get your hands on the data to inform such a strategy?

You see, you could try to visit all your competitors’ websites every day to check their latest prices and follow industry news every second of the day. But all that monitoring, and the analysis afterward, takes time and effort.

By the time you’re done coming up with your new pricing, the landscape will have changed again, and you’re back to square one.

This is where web scraping tools can solve your problems. Such tools are commonly used to track and analyze pricing and product data from competitors and the market as a whole. By doing all the research for you, you have more time to make informed pricing decisions when you need to.

These web scraping tools come in many different shapes and sizes. For example, some web scrapers allow you to gather data from your competitors’ websites.

Others let you scrape data from search engines, such as Google Shopping scrapers or even scrapers that use Google’s Google Image Search API – head over here to learn about the case in more detail.

With the help of such web scraping tools, you too can gain access to vast amounts of data so you can implement a dynamic pricing strategy for your business.

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