Dynamic pricing – How flexible prices are changing retail

Dynamic pricing means that prices are not fixed. Instead, they are continuously adjusted based on market conditions. The goal is to balance supply and demand in real time and to improve margins.

Airlines, hotels, and large online retailers like Amazon made dynamic pricing popular. In retail, it is becoming increasingly important as customer expectations, available data, and technological capabilities continue to grow.

Modern data and AI tools enable flexible prices:

• Artificial intelligence and machine learning help systems learn how demand reacts to prices.
• Pricing algorithms adjust prices based on sales, stock levels or demand.
• Cloud and API systems connect store technology and process large amounts of data in real time.
• Electronic shelf labels (ESL) allow quick price changes in physical stores without manual work.

Around 30% of large European retailers already use such systems, mostly online.

Online retailers are the leaders. Prices change automatically based on competition, demand and user behavior. Features include real-time updates, price elasticity models, A/B tests and price-monitoring tools. Dynamic pricing can increase sales by up to 10% without lowering customer satisfaction.

Several retailers are already using dynamic pricing:

Amazon adjusts prices by time of day, stock levels and competitor prices. Different customers may see different prices for the same item.

MediaMarktSaturn, REWE Digital, METRO and EURONICS use electronic shelf labels to reduce waste, lower stock costs and automate routine work.

Dynamic pricing is still in its infancy in brick-and-mortar retail, whereas it is already firmly established in online retail. Electronic shelf labels (ESL) form the basis and are linked to POS systems, merchandise management, and current data such as customer numbers, weather, and inventory levels.

Initial pilot projects show that flexible prices simplify retail processes, improve inventory management, and optimize shelf capital. Manual price adjustments are routine tasks that cost employees a lot of time. Centrally controlled and automated price adjustments can provide significant relief. At the same time, they enable better coordination between shelf prices and cash registers.

Opportunities: 

• Increased sales through demand-driven pricing
• Faster response to market changes 
• Reduced inventory write-offs, optimized inventory levels

Challenges: 

• Price fairness: Customers may be annoyed by different prices for the same item.
• Transparency: Unclear algorithms and changing prices reduce trust.
• Legal framework: In the EU, price changes must be communicated correctly.

Surveys show that dynamic pricing is considered strategically important by retailers, but customers are critical of its fairness.

Sources: PricewaterhouseCoopers study: Future of Retail Pricing, Deloitte: Dynamic Pricing and Consumer Trust, Harvard Business School blog article: Dynamic Pricing: What It Is & Why It's Important, Prof. Roll Pastuch: article "How artificial intelligence (AI) is changing price management"