Dynamic Pricing – Pros and Cons

Pricing strategy is a crucial aspect of a business that directly affects sales and profitability. If a company sets prices too high, customers may choose to buy the services of its competitors, while low prices can lead to lower revenues.

A Dynamic Pricing strategy tries to find the optimum price at all times. Price changes can be based on the perception of the amount that a customer is willing to pay at a given time for a service, supply and demand and several other variables, including more controllable endogenous ones.

Dynamic Pricing can allow companies to instantly offer price incentives to targeted customers through an API-powered assignment system. The updated prices can be subject to prior approval by Operations or Sales before submission to a customer, if required.

Companies usually create Baseline Pricing and then use the Dynamic Pricing tool to maximize their efficiencies with the agility and speed of today’s market.

Sounds interesting? What are the Pros and Cons of Dynamic Pricing?

Dynamic Pricing pros

Boost sales

Often seen as a way for companies to raise prices, Dynamic Pricing can in fact also be used to reduce prices. A drop in price can convert into increased sales, which helps a company achieve its sales plan. In the end, very often, participating companies increase their sales while their customers often benefit from reduced buy rates.

Maximize profits

If you are particularly strong in a niche market or on a trade lane, for example, then Dynamic Pricing can be used to maximize profits. You can temporarily adjust the prices of your services to exploit your relative strength over your competitors. Ultimately, profits and profitability increase.

Stimulate demand

Departed flights / vessels mean lost revenue. If right before departure, capacity is still available, it may be offered at a lower price to some shippers. That allows you to maximize profits, giving you access to any revenue available at that time. This is a useful practice when demand levels can be very variable.

Adapt Pricing to demand

During the slow periods, capacity is often readily available. This means you can pass on lower prices to your customers. This is also true during peak seasons when customers will have to pay extra. With Dynamic Pricing, you can easily adjust the prices of your services to reflect the market situation year-round.

Dynamic Pricing cons

Customers may be cautious!

Shippers accept that prices change, but they may not appreciate to feel aimed by a Dynamic Pricing strategy. Even though it can be used to save money, they feel it rather serves to increase the margins of their providers.

Price wars

If price transparency is high, a company may lower the price of its services, which incite its competitor to lower its price even further. This process continues until a company reaches a point where closing a deal is no longer profitable.

At Distroship, we can help our forwarders automate their pricing strategy efficiently and at scale. The Dynamic Pricing engine takes into account different pricing rules and data to calculate suggested selling prices for you to validate. The tedious tasks are handled by the pricing automation tool so you can focus on strategy and monitoring, and find what works best for your company.

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