Dynamic pricing is a tactic in which sellers adjust their prices to reflect real-time market conditions.
Stores react when competitors’ prices change or when supply and demand change. As inventory expands, prices contract. Items that provide more value will be sold at a higher price.
price communication
Imagine a D2C brand that sells two water bottles. The first has a charcoal filtration system and the second has a “no-spill” lid.
The cost of producing the bottle is the same. Since both are essentially premium water containers, the brand sells them for the same price ($59.99) and makes a profit of about $25 per sale.
Still, filtration bottles outsell “no-spill” bottles by 20 to 1.
Although the water bottles cost the same to produce, they offer different value to shoppers.
Bottles with filtration systems are used differently than bottles with “no-spill” lids. This filtration bottle is sold to hikers and campers who are willing to pay more money for safe drinking water. Hikers want to be able to soak a bottle in steam, collect a small amount of water, and drink it without fear of ingesting microorganisms or chemicals.
In contrast, the market for “no-spill” lids is almost certainly larger than filtration bottles, but they also offer relatively less value. Shoppers may not pay a $20 premium to avoid spilling water.
Therefore, the price of a “spill-free” bottle does not fit the market. If the brand lowers the price to $39.99, sales will increase exponentially, making a profit of $5 per item. Suddenly, “spill-free” water bottles outsell filtration bottles by a factor of 50 to 1.
Prices should reflect the value of the product. not production cost.
dynamic price
Market-based pricing has obvious advantages. Let’s consider a few things.
Earn more. Our hypothetical DTC brand increased sales of its “no-spill” bottles when it lowered its price. A similar scenario is widespread in practice.
The price of an item is essentially an agreement between buyers and sellers, a mutually beneficial exchange of value. Sellers want more profit and buyers want to save money. The price is agreed upon by the parties.
But buyers are different. For example, at $59.99, perhaps 1 in 100 shoppers will buy a “spill-proof” water bottle. But for $49.99 it’s 20. In the end, 60 shoppers would buy it for $39.99.
Therefore, if you lower your price from $59.99 to $39.99, your revenue per 100 visitors will increase from $59.99 for one sale to $2,399.40 for 60 sales.
More profit. Dynamic pricing improves your bottom line.
Remember, at $59.99, the DTC water bottle manufacturer made a profit of $25 per sale. As the price falls, so does the profit per unit. Therefore, at the $49.99 and $39.99 price points, the brand earns the same $300 profit.
good dynamics pricing strategy Change prices to maximize overall profit.
Adaptability. Real-time dynamic pricing allows prices to fluctuate by pennies or dollars, depending on fluctuations in demand, competitors, and even seasonality.
The ideal price for a water bottle is $39.99 on a winter day and $55.99 in August.
Product development. dynamic price Identify consumer preferences and needs. Data can improve marketing strategies, customer experience, and product development.
Powered by AI
Dynamic pricing has been around for decades, but artificial intelligence has made it easier. Retailers in 2025 using modern e-commerce platforms will have multiple AI-powered real-time pricing solutions to choose from.
Dynamic pricing, when implemented, is useful for sellers and buyers.
