Dynamic pricing is a strategy whereby a company changes the value of its products and services based on the supply and demand that exists in the market.
Using the same logic, firms adjust prices based on what they believe consumers are willing to pay, the behavior of their competitors, and their costs.
Companies that use dynamic pricing rely on technology, such as artificial intelligence, to raise or lower prices based on product or service availability, customer demand, and competitor prices.
Thus, prices can automatically increase at a time of high demand and limited supply, which is why it is called dynamic pricing.
Not only do consumers pay high prices, but dynamic pricing can also mean that prices are lowered at a time when demand is low or there is a surplus of the product.
Among the companies that most commonly use price changes are airlines, buses, trains, hotels, concerts, sporting events, shows, services such as Uber or Lyft, or energy rates, depending on higher or lower consumption.
Online retailers also use dynamic pricing technology to adjust the cost of products as the market changes. Amazon, Walmart and Target are known for raising or lowering prices multiple times a day based on availability, demand, competition and other factors.
Fast food restaurants are another clear example of companies that use dynamic pricing to offer deals on food and drink during slow parts of the day, but also take advantage of peak hours to sell more and at higher prices, aided by customers’ mobile apps.
Dynamic pricing can be beneficial to consumers, as businesses may be as motivated to lower prices as to raise them, because discounts tend to increase demand and, consequently, sales.
Additionally, as dynamic pricing becomes more ubiquitous, consumers can start finding deals everywhere if they are willing to wait and be selective.
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