Dynamic pricing is one of the most lucrative and popular pricing strategies used today. Dynamic pricing is a strategy in which product prices continuously change, sometimes in a matter of minutes, in response to real-time supply and demand. In this type of pricing strategy, the prices of products/services are dependant on factors including supply and demand or even competitor behavior. Although this pricing strategy is highly lucrative for businesses, it is not completely free of challenges.
Challenges of Dynamic Pricing Strategies
Infiniti, understand the impact of changing market demands on businesses. And to help companies excel in the present competitive landscape, their team of experts have highlighted some of the key challenges of pricing strategies.
Dynamic pricing relies heavily on data, and when pricing is being changed on the basis of hours or even minutes, ensuring that the data driving pricing decisions is accurate is extremely critical.
Many consumers are not aware of the fact that retailers resort to dynamic pricing to alter prices on a regular basis, but as it becomes more noticeable thanks to the web, companies must consider the perception issues it raises.
Several instances from the past emphasize on the fact that algorithms are far from perfect and can produce costly errors. As retailers embrace dynamic pricing models which are of course based on algorithms, thought should be given to how mishaps can be minimized and what policies will govern when a mishap results in a significant mistake.
Change in Customer Behavior
Dynamic pricing undoubtedly has the potential to encourage sales, but is it possible that in some instances it could impede sales? If customers get a feeling that the price of a product might dip in the near future, or perhaps even on the same day, this could result in some of them deciding to hold off on a purchase.