There are a number of studies that show the correlation between using dynamic pricing and company performance. The impact may go as high as 22% increase in profitability.
Here’s a list of studies that prove the point:
Overall, all available studies suggest that dynamic pricing can be an effective pricing strategy to increase revenue and profitability across various industries and product categories. The actual impact of dynamic pricing on revenue and profitability will however vary depending on the specific context and implementation details.
Meaning, if you have clean data and fast repricing engine that feeds you with fresh and relevant information, the chances of getting +22% increase in profitability is much higher than when your vendor provides you with wrong several-days old prices. Read more on How to choose the best price monitoring software.
Another business process that gets impacted more than anything else by the usage of dynamic pricing is Inventory management.
Here’s what has been found so far.
“Dynamic Pricing and Inventory Management in a Retail Supply Chain” (2019) by Sun and Gao found that dynamic pricing can improve inventory management efficiency by reducing inventory holding costs and increasing inventory turnover rates.
The authors used a mathematical model to compare the performance of two pricing strategies: static pricing, where prices remain constant over time, and dynamic pricing, where prices are adjusted based on market conditions.
The findings of the study suggest that dynamic pricing can improve inventory management efficiency by reducing inventory holding costs and increasing inventory turnover rates. Specifically, the study found that:
The study also found that the benefits of dynamic pricing depend on the level of demand uncertainty and the lead time of the supply chain. In general, dynamic pricing is more effective in environments with higher demand uncertainty and shorter lead times
“The Role of Dynamic Pricing in Managing Inventory Levels: An Empirical Investigation” (2016) by Kalyanaraman and Monteiro found that dynamic pricing can improve inventory management efficiency by reducing inventory holding costs and increasing sales.
The authors analyzed data from a large retailer that implemented dynamic pricing in its online channel.
The findings of the study suggest that dynamic pricing can be an effective strategy to manage inventory levels by reducing inventory holding costs.
Specifically, the study found that:
Even if your company doesn’t use value-based pricing you still can’t avoid your customers having a certain perception about your prices. Therefore, the prices you use will impact the way they think about your company, their expectations, and the loyalty level.
Several research studies have shown that the impact of dynamic pricing on the brand perception and loyalty level can be highly positive.
In general, the correlation between dynamic pricing and branding is more complex than the correlation between dynamic pricing and profitability growth. However, if company management knows what to expect and takes steps to mitigate possible negative aspects, using dynamic pricing can be an extremely efficient way to increase overall business performance.
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