INTHEBLACK June-July 2024 - Flipbook - Page 36
F E AT U R E
“A dynamic pricing
model allows you to
change the price
of any product
depending on
inventory and
demand. It would
increase discounts
very subtly until
such a point to
trigger a purchase,
which means you
are able to calibrate
the supply and
demand equation
more effectively.”
RON WOOD, PRICING INSIGHT
“Dynamic pricing is all around us.
We consume it almost every day in the form
of airline tickets, hotels and Uber, but it also
exists in our electricity market and more
and more in retail markets,” explains pricing
strategy expert Ron Wood, founder and
director at Pricing Insight.
With access to extensive data, any retail
business can adjust prices within seconds
to tailor them to the customer behaviours.
With that comes risks and opportunities,
as companies must navigate the delicate
balance between maximising profits through
personalised pricing and addressing concerns
related to privacy, fairness and customer trust,
Wood argues.
A BUSINESS STRATEGY
Dynamic pricing is the interplay between
supply, demand and the currents of market
forces. From online marketplaces to
ticketing systems, it is a strategy that
36 INTHEBLACK June/July 2024
replaces the idea of fixed costs with
a fluid responsiveness to real-time data
and algorithms.
“You know it is working if you have
demand and supply throughputs aligned,
and you are not holding excess inventory
that needs to be written off,” Wood says.
For finance teams looking to protect
and manage margins, a dynamic pricing
schedule can be very effective, particularly
where there are volatile input costs, he says.
“A dynamic pricing model allows you to
change the price of any product depending
on inventory and demand. It would increase
discounts very subtly until such a point to
trigger a purchase, which means you are
able to calibrate the supply and demand
equation more effectively.”
However, it is more complicated than
it sounds, he argues, and businesses should
avoid outsourcing pricing decision-making
without any governance or guardrails.
