Subscribe to Manu's Elastic Graphite Newsletter

Get weekly emails in your inbox to learn about value selling and dynamic pricing.

EG61: Short introduction to dynamic pricing

Written by Emanuel Martonca
on August 8, 2022

Most of us have this image of fixed prices as the norm.

It is deeply embedded in our minds, for everything we buy and sell.

As a consequence, it’s very difficult to imagine a scenario where the rates you charge for software services change from customer to customer and project to project.

What is dynamic pricing?

In theory, it means “varying the price for a product or service to reflect changing market conditions, in particular the charging of a higher price at a time of greater demand” (from the Oxford Dictionary).

In practice:

Airlines started using algorithms for dynamic pricing in the 1980s.

Travel booking platforms and other players in the travel industry followed. Now dynamic pricing is standard practice for hotel reservations, train and bus tickets, car rentals and most services in the travel industry.

Amazon is known to have been using dynamic pricing since at least the year 2000, when it applied algorithms to set the prices of DVDs.

Many e-commerce websites currently use one form or another of dynamic pricing.

Retail companies are using dynamic pricing – whenever you see electronic price tags in a shop or a supermarket, there is a very high chance that prices change pretty often.

Google Ads rates are set using dynamic pricing algorithms.

Uber introduced surge pricing in 2014 and most ride sharing platforms use variations of this.

Tickets for sporting events and concerts are priced using dynamic pricing.

Disneyland introduced dynamic pricing in 2016.

These are all examples of the modern history of dynamic pricing, where software and technology play an important role.

If we look back in history, we will quickly realize that having fixed prices is the exception, not the norm.

The price tag was only invented in the 1870s. From that point onwards, most shops charged the same price to all customers, because it was more efficient to do so.

Before the price tag, most prices were dynamic prices, set by a seller, based on many factors and variables.

Auctions are a type of dynamic pricing and they have been around for at least 2500 years.

And anyone who has ever bought something from the Istanbul Bazaar (or other similar bazaars in the Middle East and Asia) has experienced dynamic pricing in all its glory.

Evidence on the existence of bazaars dates to around 3000 BCE.

WHAT THIS MEANS FOR YOU

If you ever asked yourself “Can I charge different prices to different customers?”, the answer is yes, definitely yes.

You might also like

Subscribe to Manu's Elastic Graphite Newsletter