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Definition

dynamic pricing

Dynamic pricing, also called real-time pricing, is an approach to setting the cost for a product or service that is highly flexible. The goal of dynamic pricing is to allow a company that sells goods or services over the Internet to adjust prices on the fly in response to market demands. 

Changes are controlled by pricing bots, which are software agents that gather data and use algorithms to adjust pricing according to business rules. Typically, the business rules take into account such things as the customer's location, the time of day, the day of the week, the level of demand and competitors' pricing.  With the advent of big data and big data analytics, however, business rules for price adjustments can be made more granular. By collecting and analyzing data about a particular customer, a vendor can more accurately predict what price the customer is willing to pay and adjust prices accordingly.

Dynamic pricing is legal, and the general public has learned to accept dynamic pricing when purchasing airline tickets or reserving hotel rooms online.  The approach, which is sometimes marketed as a personalization service, has been less successful with online retail vendors. Dynamic pricing can be contrasted with fixed pricing, an approach to setting the selling price for a product or service that does not fluctuate.

See also: fair and reasonable price, consumption-based pricing model

 

 

This was last updated in December 2015

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