Although interest in dynamic pricing continues to grow, we find that leaders tend to have a vague understanding of what it actually is and what its true benefits are. Dynamic pricing allows companies to better understand and predict when to push prices higher to quickly capture the upside, or lower, to avoid volume losses. And it helps to improve and speed up the decision-making process while providing more granular insights, for example by scoring deals against peer groups and factoring multiple criteria into price recommendations, such as strategy, deal size, customer type, and product type and mix.
Dynamic-pricing skills are fundamental to stay ahead of the competition. But in our experience, tools and algorithms are not enough to capture and sustain significant impact. Companies need to put equal focus on people and processes.
1. Analytics
Each business needs to develop its own dynamic-pricing engine to achieve its specified goals based on the complexity of its pricing transactions.
2. Organization
Include the sales people or category managers into the dynamic pricing process. By being part of the process rather than passive recipients of an ever-changing price list, these people will understand that their experience is actually a key part of the model.
3. Process
To develop and maintain a sophisticated pricing approach the company need to include a standardized pricing processes, pricing performance management and regional pricing capabilities.
To find out more, you can take a look at our comprehensive pricing strategy guide that provides a comprehensive study regarding pricing management.
Read the full McKinsey article
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