Dynamic pricing: successful companies that use it

Posted on 25 May by Simon Gomez in Dynamic pricing

Dynamic pricing is not a new pricing strategy, but it is a growing trend in eCommerce. Dynamic pricing is a pricing strategy in which a company changes the prices of its products or services according to demand, supply, and other market factors.

Dynamic pricing began in 1980 when airlines took control over the price setting. Before, one person was in charge of that. That person made the decision based on his gut feeling, according to the time of day the flight was, how close to the flight someone booked the seat, how long the flight lasted, and more. In 1990, with the creation of the Internet and the surge of eCommerce, more companies started to use dynamic pricing.

So, which are the companies and industries that are using dynamic pricing? Let’s take a look.

1- Amazon

The US online marketplace perhaps is the most famous when we talk about the implementation of dynamic pricing. Business Insider revealed that Amazon makes price changes every 10 minutes, and that action, aka pricing strategy, has increased their profits by 25%, according to DZone. So, it turns out dynamic pricing is working for Amazon!

Source: Statista

How does Amazon do it? The answer to that is data recollection. Amazon has spent a lot of money on machine learning and artificial intelligence (AI). Amazon has more than one billion gigabytes of data on more than 1,400,000 servers. With that information Amazon collects, they offer customers personalized recommendations, price optimization, and targeted marketing.

2- Uber

Uber is another company that uses dynamic pricing. Their fares are typically lower than a taxi, RideGuru found out, but Uber modifies its prices according to supply and demand. For example, in rush hours or when it starts to rain, their prices go up because more people are looking for Uber drivers. And it also works the other way around. When there is little demand for the service, prices go down.

3- Airbnb

Airbnb is an online marketplace that connects people who want to rent out their homes and apartments with people looking for accommodations in different countries. Airbnb also uses dynamic pricing, but in this case, it is up to the host to apply it or not. Airbnb calls it Smart Pricing. With this feature, the nightly prices change automatically based on the demand. Hosts can set limits on their calendars anytime.

Airbnb Smart Pricing tool uses these metrics for its strategy:

Local demand in your area: If many properties are booked in your area, Airbnb increases the price because it is a popular location. During a low season, Airbnb will lower your rates.
Amenities: The more amenities and features you offer, Airbnb will give you a higher rate.
Views: The number of views and clicks on your property also plays a factor. The more views your property has, the tip rate increases.
Reviews: Five-star ratings and reviews help you increase your price. The more of these two you have, the better.
Room type: If the room you offer has a balcony, a nice view, or a private bathroom, Smart Pricing considers that factor. But if you don’t offer those, do not worry, adding a bigger bed, a smart tv or air conditioning also helps you.
Calendar availability: If almost always your property is available to book, the better rate Smart Pricing will give you. Airbnb rewards the host with better tips when that happens.
Similar listings: If potential guests look for similar properties to the one you have, the price increases because the demand and popularity are high.

PadLifter discovered that when hosts follow these Airbnb recommendations, their listings are four times more likely to be booked, leading to an average increase in earnings of 13%.

4- Google Ads

Of course, you will find Google on this list! Google Ads uses dynamic pricing to optimize the price of its keywords. When a keyword has many bidders, the price is higher. When a keyword has low bidders or none, the price is lower.

Conclusion

While dynamic pricing is not new, it is one of the hottest trends in eCommerce. Big companies like Amazon, Uber, Airbnb, and even Google use it because it helps them sell more and obtain more profits. So, if these big companies are doing it, why aren’t you doing it? PriceTweakers is a pricing software that helps your company implement dynamic pricing. Our dynamic pricing is the most advanced in the market and has many features. And as you read, dynamic pricing brings many benefits to your company. So, what are you waiting for to contact us and use PriceTweakers?