#Dynamic pricing algorithm how to

With a penetration pricing strategy, you can even set your prices to automatically pick the lowest price on the market and outbid your competitors, making it especially useful when entering new markets. With a dynamic pricing strategy, you can monitor your competition and adjust your offering to win over their clients with competitive prices. This way, price-conscious customers can acquire items at a discounted rate, while at the same time Rohlik can drastically cut food waste (and move stale inventory) while increasing its revenue and surpassing the $1 billion valuation mark. The dynamically adjusted price takes into account information about the current stock, historical sales of the product (aka market demand), expected remaining time to sell the product and other parameters. To tackle this issue, Rohlik uses Keboola and AWS to build machine-learning models that can propose real-time discounts for any given product. If the food doesn’t get bought, it ends up in the bin. Rohlik is a data-driven e-commerce business that sells fresh food, vegetables, fruit, dairy products, and other expirable food products.Ī big obstacle for any e-grocery is food waste. Example: Rohlik optimizes inventory with dynamic pricing Reduce the business warehousing and management costs by lowering the price of your stale inventory. The result? Olfin Car increased its sales by 760%. With Keboola, Olfin Car collected supply data from manufacturers (how many cars of model X were produced), competitors (pricing of model X on their site), and other resellers, and joined them into a single pricing engine that outputs near real-time pricing information based on market conditions. Olfin Car decided to use Keboola to automate the process of price determination. Both market demand and supply were fluctuating drastically, shifting the price point of the same car model by disproportionate margins.

#Dynamic pricing algorithm how to

With the change in the global supply chains, Olfin Car struggled to understand how to price its product. Olfin Car is a leading seller of new and used cars in the Czech Republic with additional services in the field of financing, authorized car service, and insurance. Dynamic pricing helps you identify that sweet spot where both are maximized.Įxample: Olfin Car’s data-driven price adjustments drive higher revenue Lower your product price point and you get a higher market demand, more purchases, and increased revenue while also cutting into your margins. Revenue and profit margins are often hard to grow side-by-side. So what business outcomes can you improve with dynamic pricing? The 3 business goals you can achieve with dynamic pricingĪ successful dynamic pricing strategy can help you: On the other hand, the machine learning approach is harder to implement but it’s more cost effective. The rule-based approach is usually easier to implement, but it reaps fewer benefits. Algorithmic approaches test different price points and optimize the price elasticity to determine the best price point for your products. Machine learning or algorithmic dynamic pricing approaches let a statistical model decide what is the ideal price point for your product pricing.For example, we could make a rule saying “When the competitor’s price for product X falls by 20%, lower our price point for product X by 10% to keep us competitive”. Rule-based dynamic pricing approaches incorporate human-made pricing decisions into their pricing point estimates.In general, we can classify dynamic pricing implementation strategies into: There are many different types of dynamic pricing that differ based on the implementation approach and implementation goal of your dynamic pricing strategy. Two approaches for implementing dynamic pricing Unlike variable pricing, fixed pricing offers set prices for products or services, irrespective of market conditions. The changes can be in real-time or they can happen over days.įor example, a pricing engine on an online retailer’s e-commerce site adjusts prices every minute to reflect fluctuations in customer demand.ĭynamic pricing can be used to chase multiple business objectives:ĭynamic pricing is often contrasted with fixed pricing. A dynamic pricing model (also called a surge pricing model) is a pricing method that changes product prices to optimize a business objective in an ever-changing market.