Dynamic Pricing: Hard to Compete with AI on Pricing

Executive Summary

Dynamic pricing—also referred to as real-time or demand pricing—is an approach used by retailers to set flexible prices for products based on current market demand. In other words, to formulate optimal prices to maximize sales and margins. Advancements in digital technology are enabling retailers’ dynamic pricing strategies to become increasingly accurate and effective.

• Digital technology can be used to gather and analyze data that influence prices and to formulate optimal pricing according to the circumstances.
• Optimal prices are calculated by complicated algorithms that consider factors such as consumer behavior, seasonality and competing retailers’ activity.
• Amazon’s use of dynamic pricing is one of the main examples of its application in retail. In order to offer competitive prices at all times, Amazon constantly scans competitors’ prices and price levels set by third-party retailers on Amazon Marketplace to inform its own pricing.