Why Dynamic Pricing is Good for Everyone


Artem Daniliants

5 min read

The news has been talking about Dynamic Pricing a lot this year. There a lot going on, and some of the media coverage doesn’t paint a pretty picture, but in this article, I hope to show you the benefits of dynamic pricing as a business owner and as a consumer. First, what is Dynamic Pricing?

Dynamic Pricing occurs when a company changes the price of a product or service as a result of increased or decreased demand.

These changes can happen in real-time and allow a business to be flexible . Dynamic pricing is also called Demand Pricing, Surge Pricing, or Time-based Pricing, but in this case, we will stick with one term for consistency and clarity. Static and Dynamic pricing Another key point to note is that Dyanimc Pricing is used to solve a problem . The reason to change your prices is to match whatever the current situation of your business is at that moment. For example, if you have too many people trying to buy it, you can reduce the need by increasing prices. The other side of the coin is to decrease prices to increase demand. Changing prices for no reason is not how it should be used and will cause problems that I will discuss later.

If you’re a consumer, then I know what you’re thinking. Businesses are increasing their prices just because people are buying it? Sounds unfair, right? Yet, there are plenty of examples you’ve likely heard of. First, there is Uber, the ride-hailing app has been known to exploit their customers at even the worst possible time. There was an instance in 2018 where the company gained bad press because they quadrupled their prices during a snow storm . As a result, many complained and the company changed its policies for such scenarios

Snow storm

Another example is the airline and transportation industry. We all know that you’ll pay a different price depending on a variety of factors and that certain days of the week are cheaper to fly on. One company in Finland even gained notoriety for selling the first few bus tickets for only 1 Euro. These are just a few of the many examples. As a consumer, you might think it’s unjust, but at the same time, you also want to know that you got a better deal than the person sitting beside you on your way to that 5-star resort in Cuba. Mojitos just taste better knowing you booked it for a steal.

Let’s talk about the benefits of this misunderstood policy, and how it can benefit companies and their consumers.

What are the benefits of Dynamic Pricing?

1. Increase Sales at Slow Times

One of the best ways to use Dynamic Pricing is to increase profit and sales at abnormal hours. This is a great strategy to use if you’re selling a product that requires a booking system.

A hairdresser, for example, might not get enough appointments in the morning. With Dynamic Pricing, they can offer a discount. The hairdresser is still costing the business money regardless, so having a customer for even half the price saves the business money.

2. Finds a New Customer Base

As a consumer who is price conscious, you might not be interested in a product at all at one price. When I shop in the grocery store, I ignore certain brands because that product seems overpriced. By having discounts at certain times, your business is being exposed to a new clientele who might not otherwise consider it.

3. Shows the True Value of your Product

Many small businesses often undercharge for their product. Value is a construct, so unless you experiment with your pricing, you’ll never know what the worth is. Artists are especially prone to undervaluing their time and work.

4. Maintains Competitive Prices

Being flexible and changing your prices allows you to be competitive in the market. Your competitors might not be using this model at all, and so it gives you an edge when people are looking for that product or service.

5. Saves Your Company Money

These days, plenty of programs exist to analyze your business and adjust prices as a result. By using this technology, you will save money not having to hire someone to constantly monitor data and implement the price changes.

How Do I Set Up Dynamic Pricing?

If your business has a WooCommerce or Shopify store, then the good news is that it’s now super easy to install a plugin to implement Dynamic Pricing. Using AIs and algorithms, you should be able to create a system to change your prices.

Shopify has an app you can easily install. With this, you can set up parameters to decide how to change your prices and when you should. You don't even need to know how to code! Pretty handy, huh? Plus, there are plenty of resources like 24 hour chat lines to ask questions and guide you through the process.

What are the risks?

Obviously, this all sounds great! Still, everything has some negatives. As such I think it is important to remind you what they are so you can be aware of them before changing all the prices for your products immediately.

1. Consumers may find it dishonest

If you are constantly changing things, then return customers will notice and feel like they’re being taken advantage of. To combat this, it’s important to be transparent and not change your prices all the time.

Not fair

2. May Start a Price War

When you undercut your competitors, there is a chance they can come back and reduce their prices too. The risk there is always a possibility, as such you remember to keep your prices sustainable and not go below your profit margins.

Key Takeaways

As with many things, it’s important that we use it ethically. As I mentioned earlier, Dynamic Pricing exists to solve a problem. If you don’t have one, you will likely face backlash like Uber does regularly. Knowing all this, Dynamic Pricing is a great way to increase profits and grow your business.