Dynamic pricing

Dynamic pricing, also referred to as surge pricing, demand pricing, time-based pricing and variable pricing, is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand. As a pricing strategy, it encourages consumers to make purchases during periods of low demand (such as buying tickets well in advance of an event or buying meals outside of lunch and dinner rushes) and disincentivizes them during periods of high demand (such as using less electricity during peak electricity hours).^[1]

Cost-plus pricing

Cost-plus pricing is the most basic method of pricing. A store will simply charge consumers the cost required to produce a product plus a predetermined amount of profit. Cost-plus pricing is simple to execute, but it only considers internal information when setting the price and does not factor in external influencers like market reactions, the weather, or changes in consumer value.^[1]

Pricing based on competitors

Businesses that want to price competitively will monitor their competitors' prices and adjust accordingly. This is called competitor-based pricing. In retail, the competitor that many companies watch is Amazon, which changes prices frequently throughout the day.^[1]

Pricing based on value or elasticity

Ideally, companies should ask the price for a product that is equal to the value a consumer attaches to a product. This is called value-based pricing. As this value can differ from person to person, it is difficult to uncover the perfect value and have a differentiated price for every person.^[1]

Bundle pricing

There are two types of bundle pricing strategies: one from the consumer's point of view, and one from the seller's point of view. From the seller's point of view, an end product's price depends on whether it is bundled with something else; which bundle it belongs to; and sometimes on which customers it is offered to. This strategy is adopted by print-media houses and other subscription-based services.^[1]

Time-based

Many industries, especially online retailers, change prices depending on the time of day. Most retail customers shop during weekly office hours (between 9 am and 5 pm), so many retailers will raise prices during the morning and afternoon, then lower prices during the evening.^[1]

Algorithmic pricing

Algorithmic pricing is the practice of automatically setting the requested price for items for sale, in order to maximize the seller's profits. Dynamic pricing algorithms usually rely on one or more of the following data.^[1]

Hospitality

Time-based pricing is the standard method of pricing in the tourism industry. Higher prices are charged during the peak season, or during special event periods. In the off-season, hotels may charge only the operating costs of the establishment, whereas investments and any profit are gained during the high season (this is the basic principle of long-run marginal cost pricing: see also long run and short run).^[1]

Transportation

Airlines change prices often depending on the day of the week, time of day, and the number of days before the flight. For airlines, dynamic pricing factors in different components such as: how many seats a flight has, departure time, and average cancellations on similar flights. A 2022 study in Econometrica estimated that dynamic pricing was beneficial for "early-arriving, leisure consumers at the expense of late-arriving, business travelers.^[1]

Professional sports

Some professional sports teams use dynamic pricing structures to boost revenue. In the United States, dynamic pricing is particularly important in baseball because Major League Baseball (MLB) teams play around twice as many games as some other sports and in much larger venues.^[1]