I have a personal interest in dynamic pricing after having worked as a Strategic Pricing Analyst and studying system dynamics while in school. There is a lot of opportunity for a technology vendor to offer dynamic pricing for the ecommerce world.

The airline industry is often cited as a dynamic pricing success story. Dynamic pricing is mostly limited to changing pricing according to what competitors are doing in your industry. Companies employ web scrapers to pull information from competitors web sites, competitors employ software to block the web scraper IP addresses, companies than buy more software to circumvent the IP block - a virtuous circle for software companies! I know of some companies employing teams of 6 people who go home early to manually scrape competitor web sites and download into excel! I have not heard of pricing based on the background of the customer, and I don’t even know if that is legal. Amazon once experimented pricing based on what browser a customer was using. The company had to refund customers who found out and who were not too happy.

However, the transaction costs of gathering personal information and monitoring purchasing habits to measure a consumer’s willingness to pay is no longer prohibitive for smaller companies start experimenting. B2B dynamic pricing based on supply and demand is accepted, but consumers are not used to flexible price tags. For this reason ecommerce (outside of travel web sites) dynamic pricing has not seen signifcant traction. Also, integrating dynamic pricing with back end systems is not a simple task and ecommerce sites have their hands full managing online advertising. Or maybe it has taken off in ecommerce but its just not being reported for fear of losing customers. Some dynamic pricing practices on web sites overviewed in this post.

This reminds me that awhile back you could buy a computer from the small business section of Dell for cheaper prices than the home section. I did not actually complete the Dell transaction but would love to hear if anyone tried this.

There are multiple ways to tinker with pricing - time based pricing, changing product offering, lead origination pricing, behavioral pricing, customer demographic pricing (Quivo would be a good partner here), and demand/supply side pricing. I am sure I am omitting quite a few other options. Oh one more, how about whether the customer is shopping online or over the phone.

This entry was posted on Friday, August 4th, 2006 at 10:49 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.