Dynamic Pricing: The Ultimate Guide

Table of Contents



1 | What Is Dynamic Pricing?
2 | Dynamic Pricing Types and Real-World Examples
3 | Pros & Cons of Dynamic Pricing
4 | Dynamic Pricing and Other Strategies
5 | Preparing a Dynamic Pricing Strategy
6 | Unlock Dynamic Pricing With Software
7 | How To Elevate Your Dynamic Pricing Strategy

Unlock More With Dynamic Pricing

Surge pricing, time-based pricing, demand-based pricing. These strategies all refer to the same pricing strategy: dynamic pricing. Whatever flavor of dynamic pricing, each has the same goal: adjust prices quickly to capture profits just as fast. The global market is changing, with more and more consumers migrating online to make their purchases. With that change comes an opportunity to tap into a wealth of data insights we didn’t previously have access to. Such is the beauty of dynamic pricing.  

At Pricefx, we’ve supported B2B and B2C companies implement their pricing strategies, from cost-plus all the way to dynamic pricing, with the help of our pricing software solutions. We understand the importance of ensuring a company’s pricing strategy keeps pace with an evolving market and consumer landscape – and dynamic pricing is an effective way to do that.  

In this complete guide, we’ll delve into everything you’ll need to know about what dynamic pricing is and how it works, including types and real-world examples, before offering some of our expert tips for building and implementing a dynamic pricing strategy of your own 


What is Dynamic Pricing?

Dynamic pricing is the pricing strategy of rapidly adjusting prices for products or services based on what's happening in the market right now. Depending on the approach, dynamic pricing can go by other names, including time-based pricing, surge pricing, and demand pricing.

As the name suggests, dynamic pricing enables businesses to price flexibly and in real time in response to shifting consumer preferences and market conditions. Companies in several industries use dynamic pricing to capture more profitable margins in transactions, drive sales, manage inventory levels, and other goals. 

The strategy is appropriate for companies, particularly in e-commerce, that require quick reactivity to several fluctuating factors in their pricing. These include those in the tourism, retail, hospitality, entertainment and increasingly in B2B industries.  


How Does Dynamic Pricing Work?

Dynamic pricing is driven by data-driven algorithms from machine learning (ML) and other AI technologies. These algorithms run through massive amounts of historical sales and market data to detect meaningful patterns and set optimal prices for products or services in real time. Here are some common factors considered in dynamic pricing algorithms:  

  • Supply and demand dynamics 
  • Competitor pricing 
  • Market trends 
  • Time and seasonality  

The underlying science of dynamic pricing strategies can vary widely. Some are driven by black-box systems like neural networks, while others are driven by other machine learning algorithms or statistical techniques. Whatever the method, dynamic pricing should ultimately facilitate quick price adjustments in response to a diverse set of consumer, market, and competitive factors.  



Segmented Pricing

Time-Based Pricing

Peak Pricing

Penetration Pricing

Personalized Pricing

Location-Based Pricing

Event-Based Pricing

Price Discrimination

Segmented pricing is a pricing strategy based on offering different prices for the same product or service to different customer segments. Employed in all industries, segmented pricing is used to cater to different preferences and willingness to pay – and maximize revenue while doing it. 

For example, airlines charge higher prices for business class seats because some people don’t mind paying more for the perks, while others are fine with lower-priced coach seats. Additionally, movie theaters use segmented pricing by default, with tickets for the same movie priced differently for adults, seniors, children, and students. Another example comes from sports stadiums. Segmented pricing is the reason those nosebleed seats are the most affordable and the box seats are out of reach for most. 

Segmented pricing isn’t just about pricing for different customer groups; to accommodate local economic conditions and willingness to pay, companies adjust prices for the same products depending on the region. Ever notice how the cost of Netflix subscriptions varies by geographic location?  

Real-World Examples of Dynamic Pricing

Now, how is dynamic pricing used in the real world? Let’s consider two highly profiled examples: Amazon and Ticketmaster.

Amazon: A Global Leader in Dynamic Pricing for E-Commerce 

Amazon, the global e-commerce giant, is perhaps the most visible example of dynamic pricing through its continuous pursuit of competitive pricing. Its dynamic pricing mechanism, which is often known simply as “repricing,” involves rapidly adjusting prices for its 400+ million products to align with demand levels and customer behavior.  

While the exact mechanics underlying the company’s dynamic pricing algorithm are a well-kept secret, here are some general factors that contribute to Amazon's dynamic pricing approach: 

  • Demand: Amazon gauges market demand for products by considering factors like seasonality, trends, and consumer motivations (such as an outright need vs. status). 
  • Supply: Its algorithms also consider stock levels for a particular product. Products with low availability but high demand are priced higher to manage inventory, while products with high availability but low demand typically come at a cheaper price to incentivize sales.  
  • Browsing History: Leveraging user data, Amazon also tracks how their customers interact with their products and tailor prices based on factors like frequency of page visits and interest in related products.  
  • Day and Time of Purchase: Certain days or times yield higher purchasing activity, which can prompt Amazon to adjust prices to entice customers to buy. 

While your company may not be as big as Amazon, your business can apply similar rules in its own dynamic pricing strategy to lock in profitability and maintain a competitive edge.  

Ticketmaster: Dynamic Pricing for the Live Entertainment Industry 

Ticketmaster, the world’s leading live events ticketing company, is another prominent case of dynamic pricing that made headlines for its approach to pricing concerts for popular performers like Taylor Swift and Harry Styles.  


While the company doesn’t delve into the specifics of its strategy beyond supply and demand, due to how dynamic pricing in entertainment typically works, these are a few factors Ticketmaster has likely considered in its dynamic pricing algorithm.  

Pros & Cons of Dynamic Pricing

Dynamic Pricing and Other Strategies

Dynamic Pricing vs. Non-Dynamic Pricing

Dynamic Pricing vs. Price Discrimination

Dynamic Pricing vs. Price Optimization

Dynamic and non-dynamic pricing strategies  (e.g., fixed pricing) are two largely opposing approaches for setting prices. While fixed pricing involves setting static, unchanging prices, dynamic pricing involves rapidly adjusting prices based on current market conditions, such as supply and demand and competitive pricing. 


When to Use Dynamic Pricing or Fixed Pricing  

Fixed pricing is typically used for transactions like bulk ordering or for one-time, time-dependent payments. Dynamic pricing, on the other hand, is useful in industries where external conditions are unstable, allowing businesses to optimize revenue by adapting prices in real-time to match them. 

Dynamic pricing and fixed pricing also provide distinct benefits. Fixed pricing provides transparency for customers into pricing due to its stable nature, but on the other hand, limits flexibility for businesses to adjust prices response to market conditions. Dynamic pricing, while beneficial due to its agility, risks alienating customers due to frequent price fluctuations.  

It is worth noting that often, the businesses that could benefit greatly from dynamic pricing but still opt for fixed pricing are ones that currently lack the tools to approach their pricing strategies differently.  

How to Create a Dynamic Pricing Strategy 

By following these steps, you'll be well on your way to building a dynamic pricing model that keeps your business competitive and maximizes profits in the long term. And if you’re not seeing the results you need? Time to rise and repeat these steps! 

Ready to optimize your pricing strategy? Pricing software is your go-to tool for building dynamic pricing models that are both efficient and accurate, ultimately taking your pricing strategy to the next level. Before diving in, here's our user-friendly guide to building your dynamic pricing model with the help of pricing software. 

Six Steps for Building a Dynamic Pricing Strategy 

Preparing for Your Dynamic Pricing Plan

You've now set up your dynamic pricing strategy in your data-driven solution – congrats! Before you go full steam ahead, though, there are still a few more action items you'll want your company to check off to effectively prepare for dynamic pricing. Here are our top six.  

Six Tips for Preparing for Dynamic Pricing 

Unlock Dynamic Pricing With Software

With the basics of dynamic pricing under your belt, you might now be wondering how to effectively implement dynamic pricing strategies to achieve the best results for your specific objectives. 

As you’ve seen, dynamic pricing stands out as one of the most complex strategies out there, typically requiring much more data than other strategies, seamless access to the latest competitive data and supply and demand dynamics (among other factors), and a powerful pricing engine to make sense of it all.  

A data-driven solution is the only feasible choice for effectively managing all of these moving parts, bringing in advanced methods like machine learning AI-driven price optimization, analytics, pricing strategy impact simulations, and more.  

To learn about Pricefx’s AI and analytics capabilities and how they can drive your pricing strategy forward, don't miss out on our Pricefx AI Optimization page and our guide to price analytics software.

Or to delve deeper into the mechanics underlying dynamic pricing, consider exploring our articles on machine learning vs. AI or neural networks for pricing 

And if you’re going to be using a software solution for your dynamic pricing, you’ll need to prepare your data well to ensure that it’s used effectively. To help, head over to our guide on how to get your data ready for implementation success.  

Finally, if you think we may be the right fit to support your company in its dynamic pricing journey, then head straight to an expert to discuss how we can work on implementing your strategy for the best results. 

Discover How to Elevate Your Dynamic Pricing Strategy With Pricefx

When it comes to dynamic pricing, the plan is just as important as the tool. Discover how our pricing software enables you to test and refine your pricing strategies, support decision-making with data-driven insights, and ultimately, build margins and capture profits in the long term.    

To get in touch with our experts, click on the button below, where you’ll be prompted to fill out a short form. Once done, you should hear from one of our representatives within 48 hours to set up a meeting. There you’ll discuss your challenges and needs with us to determine whether we’re the right fit for you.  

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