Dynamic Pricing and Its Benefits, Informatics for Technology LLC | Oman
New Technologies

Dynamic Pricing and Its Benefits

If you own a supermarket, you know that the most challenging part of your job is to price your items. Pricing is not easy like a lot of people think, it depends on a lot of factors. 

Some of these factors are the shipping price, the rent of the place it takes, the cost of making it cold in the fridge if needed, the raised cost if it goes higher, and the cost of enhancing your service and growing up.

With all of those factors in mind, you may have a problem finding the best pricing for your items. And if you’re good in Math, you might be doing a good job calculating your prices alone. But what if I told you that there’s a thing that will help you in this process and saves you a lot of time?

Dynamic pricing

Dynamic Pricing is one of Machine Learning applications that is widely used in various industries like transportations, eCommerce, power companies, and more.

One of methods for dynamic pricing is simply setting prices to products based on market current condition. It works according to data used to understand the market conditions to maximize the revenue.

Dynamic Pricing Methods

As we said before, dynamic pricing uses data in order to set the prices well. And according to Yigit Kocak, there are 3 methods for dynamic pricing each one with a specific type of data:

1- Cost-based pricing

This is done by adjusting the prices dynamically according to the costs keeping the profit margins in a certain level.

2- Competitor-based pricing

It is adjusting prices taking into consideration the competitors pricing.

3- Demand-based pricing

It’s a pretty straightforward method as it raises the cost of a product if there’s a huge demand on it and decreases the supply.

How Dynamic Pricing Works?

The machine learning part of dynamic pricing is responsible for making suggestions for the prices. It can also improve its learning by time when larger data sets are used. 

Dynamic pricing can work easily using any method of those mentioned above. The complexity grows when you think about a combination of them taking all the factors in consideration.

Dynamic Pricing Advantages

1- Automating the process of pricing

The dynamic price can minimize your effort calculating prices yourself significantly through automating the process. Whatever the method you choose, dynamic pricing can save you a lot of time making it easier for you to work on other things.

2- Rescuing Decisions

Using dynamic prices can help you take decisions taking into consideration the market condition. It may rescue you from bad sales during a low-demand season.

Dynamic Pricing Disadvantages

1- Customer Confusion

If your prices are changing constantly, a lot of customers may confuse and go to sellers who don’t use dynamic pricing.

2- Marketing Issues

For the same reason of changing prices constantly, that may make your marketers work very hard to make your customers know the updated new prices.

Application use dynamic pricing

Uber

It’s one of the most famous applications that use dynamic pricing in their systems. It takes into consideration the demand method which implies that if there’s a huge demand, the fare goes higher by x2.5 for example.

References

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