Dynamic Pricing in Retail: How AI is Helping Small Businesses Maximize Margins

How easy is it nowadays to shop online? Open up a browser, search for the item you want and you will see a multitude of sellers offering the product for very competitive prices. Compare and find out the best deal for you considering delivery or EMI options and voila. There has been a tremendous increase in e-commerce since the COVID-19 pandemic. According to Statista, e-commerce accounted for 19.4% of total retail sales across the globe in 2023. This number is expected to go as high as 22.6 by the end of 2027.

This has created a hyper-competitive online environment where adjusting the price of products and services according to various factors has become integral to boosting sales and profit. In essence, this active, mostly automated, and frequent changing of prices of products and services is Dynamic Pricing. 

What Is Dynamic Pricing?

In simple terms, Dynamic Pricing is a very flexible pricing strategy where the price of a product or service changes depending on several factors such as real-time market demand, supply, competition, customer behavior, or other external factors. 

Rather than deciding on a price and retaining it for a set period, retailers can change the prices of their products or services, even multiple times within a day, to make the most of an ever-changing and hyper-competitive market. With Dynamic Pricing, the price of your product or service changes according to its relative value in relation to the changes in the market.  

Why Is Dynamic Pricing Important in E-Commerce?

You can think of Dynamic Pricing and E-Commerce as twins who evolved together. The internet, its wide reach, popularity, and cost-effective availability, was the driving force behind both. As the internet became more popular, e-commerce grew and so did dynamic pricing. It is a staple of the travel industry and has been the norm for hotel rooms and airline tickets. In e-commerce, Amazon has been a global leader in Dynamic Pricing changing the prices of millions of products in its portfolio as frequently as every few minutes. 

There are two major reasons why Dynamic Pricing is important in e-commerce:

1. Better price transparency: With more and more customers shopping online, everyone is comparing prices. Each customer is more likely to compare a product’s price with that of a competitor to find out which business offers them a better deal. This puts your product pricing under the spotlight. Get it right and customers will flock to your business for online purchases. 
2. Frequent price changes: This is in part a result of the earlier point. Due to the increase in price transparency and the spike in price comparison, the number of price changes also increased. The popularity of e-commerce has driven this trend further ahead. 

Key Benefits of Dynamic Pricing for SMB

Adopting Dynamic Pricing strategies will help you discover major growth opportunities, increase profitability, and bolster customer relationships. Let’s understand the benefits Dynamic Pricing can offer your business.  

1. Increasing Revenue: Let’s be honest, sales is at the core of everything in e-commerce. Dynamic Pricing will help you change prices in real-time based on factors such as demand, market trends, and inventory levels. 
2. Ensure Competitiveness: It is an ultra-competitive market and Dynamic Pricing helps you react instantly to a competitor’s move. By either undercutting or matching a competitor’s pricing, your business can retain its competitive edge and cost-conscious buyers without compromising on profits.
3. Better Inventory Management: Unsold inventory is bad for any business as it uses up resources and leads to monetary loss. Dynamic Pricing can be used to maximize profits from in-demand items and provide strategic discounts and offers for slow-moving products. This prevents your business from running out of in-demand items or being stuck with unsold inventory. 
4. Data-driven Decisions: Dynamic Pricing software takes full advantage of powerful tools like advanced analytics, to present your business with actionable insights on crucial factors such as pricing performance, customer behavior, and market conditions. These data can be analyzed to make smarter decisions that generate more profit while providing a better customer experience.
5. Adaptability: Helps you change prices and react instantly to the various changes in the e-commerce market including economic changes, seasonal trends, competitor campaigns or promotions, etc.
6. Better Customer Experience: All of these strategies are also aimed at providing a better shopping experience for customers. Timely discounts are delightful for customers and ensure repeat purchases. Flash discounts and limited-period offers can drive urgency and customer engagement. 
7. Growth Oriented: The integration of advanced technologies like Artificial Intelligence (AI) and Machine Learning (ML) helps gain valuable information on sales patterns, market trends, and customer behavior. This can be used to optimize strategies for sustainable growth. 

Dynamic Pricing Software

Now that you are clear on the importance of Dynamic Pricing and its benefits, let’s dive deeper into the Dynamic Pricing Software from retailcould. Here are the Dynamic Pricing Software offered by retailcloud:

• ZeroPOS

ZeroPOS is an all-in-one retail POS system from retailcloud, designed to simplify operations and drive business growth. It offers a modern, fast, and intuitive interface, enabling effortless management of retail processes. With features like clienteling mode, sales associates can engage customers on the floor, enhancing their shopping experience. ZeroPOS provides insightful reporting with clear graphs for quick business performance overviews and supports fast cashier training in just 15 minutes.  

Its robust tools include modifiers, tipping, order holds, and seamless integration with scales, KDS, printers, and payment devices. Merchants can streamline scheduling, automate discounts, and create loyalty programs to encourage repeat visits. ZeroPOS is a user-friendly solution that boosts operational efficiency while improving customer satisfaction.

•  6ixPOS

6ixPOS is a simplified, mobile POS solution from retailcloud offering affordability, ease of use, and powerful tools to streamline business operations. Designed for Android and iOS, it enables businesses to manage inventory, pricing, and employee attendance with efficiency. The inventory app allows users to create and manage items, receive inventory, and make real-time price changes. The nGauge app provides instant access to sales metrics, top-selling products, and best customer data.  

6ixPOS supports seamless online store integration, enabling 24/7 sales tied to inventory. It simplifies tax management with multi-tax plans and real-time rate adjustments. With comprehensive payment options and instant customer feedback, 6ixPOS enhances operational accuracy, efficiency, and adaptability, helping businesses increase performance and improve customer satisfaction.

• Servio 

ServioPOS is a cloud-based QSR POS system from retailcloud, designed for fast-paced dining environments like casual dining and QSRs. It offers real-time order management, both online and offline, reducing wait times and enhancing customer satisfaction. With centralized cloud management, ServioPOS syncs data across outlets, ensuring consistent service.  

The system simplifies menu customization with an intuitive interface for specials, modifiers, and price adjustments, perfect for line-busting. It streamlines kitchen operations with multiple printer setups and routing rules. Integrated online ordering ensures real-time updates and seamless workflows.  

ServioPOS enhances efficiency with fine dining and QSR workflows, flexible tip management, and detailed reports. Its robust features improve operational efficiency, drive customer loyalty, and create a fast, smooth dining experience. 

• SuiteSpot 

SuiteSpot is retailcloud’s premium suite management solution designed to simplify operations and elevate guest experiences. It enables suite owners and guests to pre-order effortlessly, ensuring a stress-free event experience. Tailored services leverage guest preferences and order history to enhance satisfaction, while real-time order management facilitates seamless communication between suite attendants and the back office for faster, more reliable service.

The system automates order management, reducing operational overheads and improving inventory control to prevent shortages. SuiteSpot also streamlines ordering with an intuitive interface, secure payment options, and personalized suite menus. Its detailed reporting and seamless third-party integrations provide valuable insights for smooth operations. SuiteSpot combines convenience, speed, and personalization, offering a superior, hassle-free experience for premium suite guests.

The Dos and Don'ts of Dynamic Pricing in Retail

Now let’s try and understand some of the dos and don’ts in Dynamic Pricing.

Dos

• Total cost is more important to the customer than product price: Online shoppers will always think about how much an item is going to cost them rather than just its price. They consider taxes, shipping rates, service or assembly charges, additional fees and even the minimum order number before making a purchase. If you think that customers will flock to your website just because the prices are great, think again.  
• Customer expectations are valuable: While frequent price changes are considered normal for certain items, there are other products for which having a stable price would work better. Understanding which strategy works best for which product is crucial.
• It is trial and error: There are no cookie-cutter strategies in Dynamic Pricing as you have to consider multiple factors. It is both art and science at the same time. Following someone else’s strategy would not work for you and it is better to try things out on a smaller scale and find results before implementing them on a large scale. 
• Plan everything step by step: As the name suggests, Dynamic Pricing is dynamic. It is always better to have your unique plan based on the market situation and trends. The more you understand your business’s position in the market, consumer behavior and their perception of your brand, the better.
• Use data and analytics: Make the best use of real-time data and algorithms to track market trends, customer behavior, and competitor pricing to adjust prices. 
• Clearly communicate value: This is a no-brainer. Justify price changes by highlighting the value, such as premium quality, exclusivity, or additional features, your customers would receive.

Don’ts 

• Don’t alienate loyal customers: Price changes are considered normal for certain items but the same could irk loyal customers of other products. Be mindful that price changes are in alignment with your brand and the customer experience you wish to provide.
• Don’t change prices just for the sake of it: Triggers for price changes can vary based on a number of factors. However, if there is no substantial reason for changing the prices, please don’t.
• Don’t forget to advertise a price drop: If you have chosen to lower the price, make sure that you are advertising it. How do you expect your customers to know you have lowered the price if you are not telling them?
• Bad inputs can ruin data-based strategies: What’s the point in blaming the calculator if the data entered was wrong? Several factors play their part in how you decide the price of a product. Any bad inputs in the data will result in algorithms showing erroneous calculations and projections. Cross-check inputs and verify them before implementing any strategy. 

What Are Dynamic Pricing Strategy Examples?

There are three fundamental pricing strategies - cost-plus, competitor-based and value-based. Let’s understand these three before moving on to other popular strategies.

1) Cost-Plus

This is the most basic and simplest pricing strategy. You take the cost of a product and add your desired margin to it to decide on the final price. While this is very easy to implement, this strategy completely ignores external factors such as market conditions. 

2) Competitor-Based

As the name suggests, this strategy basically follows your competitor’s pricing and reacts to it. When your competitor changes the price, so will you. While it takes your competitor’s pricing into consideration, it assumes that they have actually set the prices. 

3) Value-Based

This method takes advantage of the elasticity of a product’s pricing. Different customers value each product differently and this is reflected in how much they are willing to pay for the product. In essence, value-based pricing changes prices according to the consumer’s perception of a product’s value.

There are several other pricing strategies that are frequently used. They are either variants of one of the three strategies or a combination of two or more. Let’s take a look at them as well. 

• Inventory-Based 

Retailers and e-commerce companies utilize this strategy the most. They will reduce the prices of overstocked items and increase the prices of low-inventory products to create urgency. This helps them manage stocks and boost sales. 

• Time-Based  

This strategy is most popular in the travel and hospitality industries. Hotels and airlines increase prices during peak travel seasons, holidays, or weekends and decrease them during off-peak periods. This helps them gain the best revenue according to the demand to supply.

• Demand-Based 

A strategy mostly employed by the transportation and ride-sharing companies. The price of service is increased during high-demand periods such as rush hours, bad weather, or major events while low-demand periods would have lower prices. 

• Peak/Off-Peak 

This strategy is employed by players in the utilities and energy industries. They charge higher rates during peak usage hours and lower rates during off-peak hours. This helps them spread the demand and optimize resource usage.

How retailcloud Implemented Dynamic Pricing

There are a plethora of factors why retailcould’s Dynamic Pricing solutions are sought after by companies from a wide range of industries.

retailcloud leverages advanced technology and data-driven strategies to implement the most suited dynamic pricing plans. Our POS systems analyze real-time data and the output is used by businesses to adjust prices dynamically to reflect current market conditions. We assist businesses in implementing targeted pricing strategies by segmenting customers based on relevant factors. This helps our clients to encourage repeat purchases and increase customer satisfaction. The tools we employ help businesses automate price changes based on predefined rules. This reduces manual effort and ensures that pricing remains competitive. 

On top of all this, retailcloud’s POS solutions offer an intuitive interface for creating dynamic pricing rules, using which businesses can easily configure modifiers, discounts, or price tiers. The icing on the cake is that we integrate online and offline sales channels, syncing price changes across both. Our insightful reporting tools, which allow businesses to evaluate the effectiveness of their dynamic pricing strategies, are the cherry on top. So what are you waiting for, contact us today for the perfect pricing solution you need and rake in profits like never before. 

FAQ

Which retailers implement dynamic pricing?

Online retailers leverage dynamic pricing technology to modify product prices in response to market fluctuations. Amazon frequently adjusts prices multiple times a day based on factors such as demand, availability, and competition. Similarly, Walmart and Target apply dynamic pricing strategies for their online products.

Which industry is most likely to implement dynamic pricing?

The airline industry is one of the most notable examples of dynamic pricing. Airlines have long used this strategy, adjusting ticket prices based on factors such as demand, seasonality, and flight schedules. For example, fares tend to rise during peak travel periods and drop during off-peak times.