Dynamic and surge pricing are two flexible pricing models. surge pricing is a form of dynamic pricing that multiple companies like Uber, Amazon use regularly To flexibly arrive at an optimum pricing strategy, many businesses are adopting some form of Dynamic Pricing or Surge Pricing.

Dynamic pricing refers to a strategy where the prices of goods and services are changed in real-time based on relevant factors. Surge pricing, on the other hand, refers specifically to a form of dynamic pricing where prices are raised in response to increased demand where supply is limited.

Getting your pricing strategy right is fundamental for any successful business. But finding the "right" price is dependent on many factors. Your target customers, competitors, and market trends can all influence where you should set your prices. Start them too high, and your sales could be negatively affected. Start them too low, and your revenue will suffer.

Dynamic and surge pricing are subtly different strategies for reaching the optimal price for your goods and services. We will explain the strategic benefits of each approach below:

‍

The Difference between dynamic and surge Pricing

Both dynamic and surge pricing can grant businesses flexibility within their pricing strategies. However, dynamic pricing automatically adjusts your prices in response to various factors. For example, this could involve charging more when demand increases and lowering costs during a sales slump.

Surge pricing, on the other hand, is just one particular form of dynamic pricing. It refers specifically to models where prices increase temporarily at times of high demand. Uber is a high-profile example of a brand that uses surge pricing. In its case, this model is employed when passenger demand exceeds driver supply. In short, all surge pricing strategies are examples of dynamic pricing, but dynamic pricing models do not necessarily rely on surge pricing.

‍

Real-Life Use Cases

Some of the largest brands in the world make use of dynamic and surge pricing strategies to maximize their revenues:

Amazon:

Aside from Uber, Amazon is another example of a multinational enterprise using dynamic pricing to increase its profits. It's been reported that Amazon changes its product prices 2.5 million times a day, leveraging its vast data store to optimize costs.

Airbnb

Airbnb uses a dynamic pricing algorithm that considers factors like seasonality, demand, nearby events and more to help hosts list their properties at the optimal price. Hosts that select a price within 5% of Airbnb's price recommendation are nearly four times more likely to receive a booking than those that don't.

Airlines

Almost every airline employs surge pricing in some form - even if they don't necessarily admit it. As a result, prices for flights are generally higher at times of peak demand - such as during the summer.

‍

The business value of flexible pricing

A highly price elastic product or service can benefit from a dynamic or surge pricing model. As a result, businesses can arrive at data-driven prices that suit their customer base - not rigid, inflexible ones that fail to react to economic reality. Amazon, for example, has increased its profits by around 25% since implementing dynamic pricing.

It's important to note that dynamic pricing doesn't only benefit businesses and can also be advantageous for consumers. As long as brands are transparent with their pricing strategy, the flexibility provided by dynamic pricing can enable customers to access products and services at cheaper rates when demand is low. You can head over to our pricing strategies for industry page. and read the comprehensive guide for a clearer perspective.

Conclusion

Settling on a price for your product or service can be complex and sensitive for customers. For instance, the backlash around Uber's surge pricing strategy demonstrates that pricing is not a matter to be determined on an ad-hoc basis. At SYMSON, our Genius Dynamic Pricing solution combines several pricing strategies. With our plug-and-play software, The Pricing Strategy Builder, you can create, automate, and execute a pricing strategy that is right for your business - whether it involves dynamic pricing, surge pricing, or any other model.

Utilizing our Smart AI Strategy and Price Elasticity algorithms, you can apply your own business rules, avoid manual intervention, and unlock your pricing potential. Want to learn more about how SYMSON can help you make fact-based pricing decisions? Schedule a call with a consultant and book a 20-minute brainstorming session today.