AI and Dynamic Pricing – Secret Weapon of Tech Giants Today

3 min read

Dynamic pricing

One price for everyone! The invention of price tag took place in the 1870s to maintain the fairness of everybody looking to buy the product they love. Dynamic pricing had always been the norm ever since human history. A century back even the ticket for a cinema was charged less for a matinee screening as compared to the usual popular evening shows.

Born out of the ‘80s, dynamic pricing is now one of the most commonly used marketing techniques by several industries. Anyone old enough will remember the American Airlines’ Super Saver fares online commercial where the airline played a major cutthroat with the fares. Then the country`s second-largest carrier “American Airlines” reduced their price up to 70% to pull in customers and win back the customers they had lost.

Today with AI, would we be moving toward the future where the dynamics of supply and demand will be taken into consideration while a customer makes his first purchase?

When we hear the word artificial intelligence, it is still easy to imagine a dystopian science fiction future where you could imagine robots taking over the world and enslaving us. But AI is here to make our lives simpler. Isn’t it? The good news is, the need for AI engineers is becoming a raging fire. With such dynamic changes, we’re seeing in the current market, AI experts will rule the world.

In recent years, AI has enabled pricing solutions to track buying trends and to determine more competitive product prices. It has the tendency of offering customers’ different prices based on the external factors and their buying traits.

Have you ever realized how Uber, Amazon, and Airbnb are creating an entirely new market and crushing all competitors in the industry? Rapid growth for sure is one thing that is common among these three tech giants. No doubt, dynamic pricing is a major factor that is driving growth and success overall to these companies.

We know that dynamic pricing is a strategy company uses to match the supply and demand in the current market.

Dynamic pricing

Here’s an example, the fare of an Uber is considerably lower than a normal taxi. However, when there’s a match or a baseball game coming up and the demand spikes, the prices also tend to spike. To watch the game, you need to pay more due to the demand. On the other hand, you will always be able to book an Uber when you need one. The sole reason is simple – since the fares are better there will be more drivers around the ballpark. As people tectivend to leave, the availability opens and the price gradually lowers down.

As said by Don Fluckinger, Executive Editor at TechTarget, “AI-assisted dynamic pricing algorithms will be hard-wired into CRM platforms, giving users the ability to automate real-time pricing as per market demand, local events, customer data, etc.”

Is this even possible?

Getting into this field is not a cakewalk. Everyone knows that the world of artificial intelligence is increasing rapidly. AI Professionals are now yearning for better career growth, most important they’re in-demand in every industry we know of.

We’ve heard of dynamic pricing but what exactly is AI-assisted dynamic pricing algorithms?

In today’s tech-driven world, ride-hailing companies like Uber have started leveraging their data in real-time. This is the reason why users see different prices in different areas of a city and at a different time of day. This is dynamical because the adjustments have been made based on the real-time data on the supply of the drivers and the predictions on the customer location, the traffic in the area, weather, etc.

The concept of AI-powered dynamic pricing is straightforward.

With real-time data, the CRM software running on cloud platforms is being coupled with AI tools which generally takes up the dynamic pricing algorithm and then couples it with state-of-the-art sales automation. Now the dynamic pricing algorithm sets the real-time pricing for several markets such as travel companies to sports and even B2B markets.

Dynamic pricing


How does it work?

The data is collected based on customer behavior such as,

  • The kind of item the customer viewed
  • The number of hours spent on that product or item
  • The kind of products purchased and what are the products that were placed in the basket
  • The location of the customer

These real-time data are fed into an AI engine that translates the behavior into a persona and then it tries to predict things for you. One of the major things it predicts is the amount of money you’re willing to spend on that product. To conduct such complex tasks AI engineers have been claimed to have the expertise of handling such responsibilities.

Data gathering – data analysis using AI – formulating the optimal pricing calculation algorithm – optimal pricing formulation. This is likely the process that is implemented.

The AI-powered dynamic pricing is said to have added an average of 2% to 3% to their customers’ bottom line without any additional administrative cost making up to a 10% boost for other customers. These algorithms have the potential to augment and configure the price quote system. In return, it benefits the salespeople to have a quicker pricing quotation based on the rules on how fast automation closes the deal.

Those days are long gone where one needs to sit in front of a system to predict the pricing based on the info from the market. The deeper you gaze, the more you will see how AI is dominating the world today.

Michael Lyam Writer, Guest Blogger, Social Media Strategist

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