Whether it's dynamic pricing or variable pricing, the importance of choosing the right pricing strategy is undeniable. Research by McKinsey & Company found that a price increase of just 1% can lead to an 8.7% increase in operating profits. Nevertheless, the consultancy firm estimates that as many as 30% of all pricing decisions fail to achieve the optimal price.

Aware that pricing could make the difference between business success and failure, many organisations are adopting various pricing strategies to find the “best” price. Dynamic and variable pricing are two of the most commonly employed pricing models. We’ve explained the differences between the two approaches below:
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Comparing dynamic and variable Pricing

Dynamic pricing is a strategy where the prices of goods and services are changed in real-time based on relevant factors. Dynamic pricing usually depends on a consistent data supply, including prices, costs, margins, product IDs, quantities, and more, to ensure that prices are always set correctly.

Variable pricing is similar to dynamic pricing in that prices are flexible - brands adopting this strategy do not have to stick with a static price for their goods and services. Where variable pricing differs is that prices do not fluctuate in real-time. Any variations are determined before an item is made available for sale. After products or services are offered to the public, the prices do not change.

Real-life Use Cases

Businesses of varying sizes employ both dynamic and variable pricing strategies. Deciding which model is right for your organization is likely to depend on various factors, with specific industries more likely to favour one strategy over the other.

●  Hospitality

Variable pricing is standard in the hospitality sector, with hotels charging different rates due to seasonality. Consumers looking to rent a room in the height of peak season - like summer on the Meditteranean cost - will face a higher price than those hoping to rent the same room in the middle of winter. They may have the same booking and receive the same service, but they are charged different prices.

●  Travel

‍Like the hotel industry, airlines frequently employ variable pricing. Frequent flyers may have noticed that prices fluctuate substantially depending on when a booking takes place. The holiday season, for example, is a period of peak demand, leading airlines to raise their prices. As a result, two passengers could be sitting next to each other on a plane having paid very different prices because they made their purchases at different times of the year.

●  Retail

‍Many eCommerce firms utilise dynamic pricing to set an optimal price for their products and services. With the vast quantities of data created during the customer journey, retailers can form a detailed picture of the optimal price for each customer. Major brands change prices multiple times a day based on the data at their disposal. Amazon, for example, looks at individual buying behaviour, competitor activity, profit margins and inventory to formulate the best price for its products.

The Business Value of dynamic and variable Pricing

Whether businesses employ dynamic or variable pricing, any price increase that does not lead to a loss in sales volume will result in higher profitability. Similarly, any price decrease, if an increase in sales numbers offsets it, will also lead to increased revenue. Pricing is a balancing act. Brands must evaluate which strategy is most effective for finding that balance.

The business value of variable pricing is that it helps brands to remain competitive. When demand is low, as the hotel industry exemplifies, prices can fall to attract more customers. One of the downsides of variable pricing is the extra manual work it demands from brands. With dynamic pricing software, on the other hand, various data points can be analysed instantly to deliver the optimum price. It’s an approach that has seen chemical, retail, MedTech, and other firms increase their profits.

Conclusion

At SYMSON, our Genius Dynamic Pricing solution combines several pricing strategies. Brands can execute agile price testing, set smart business rules, and leverage the data at their disposal. Our plug-and-play software lets you select prices for different geographies and markets so you can decide whether variable or dynamic pricing is right for you.