What Is the Difference Between Fixed Pricing and Dynamic Pricing?

To build a strong pricing strategy, you need to understand your competitors and the wider market. Whilst it might seem safe, and status quo, it

To build a strong pricing strategy, you need to understand your competitors and the wider market. Whilst it might seem safe, and status quo, it can be hard to do this with a fixed price strategy. But, this is where dynamic pricing comes into play. With Dynamic pricing, you can stay on top of what your competitors are doing, allowing you to get ahead with agile pricing decisions.

So, what’s the difference between fixed pricing and dynamic pricing? Fixed pricing policies are when a retailer determines a price for a product and maintains that price for a long period of time. Dynamic pricing is when retailers regularly change a product’s price in response to changes in the market or in demand.

Read on to learn more about the differences between fixed pricing and dynamic pricing to see which strategy is right for your business.

What is the Difference Between Fixed Price Policy and a Dynamic Pricing Policy?

The key difference between fixed price policies and dynamic pricing policies is that with fixed pricing, retailers set a price for an extended period of time with no intention of changing it for a while. This can appear to be a safe, simple option with limited financial risk, but consider that in an online world, you may lose out to those that stay on top of a changing market.

With dynamic pricing, the price of a product can change several times in the same period, based on changes in the market, competitors’ actions, and demand.

However, bear in mind that dynamic pricing doesn’t necessarily work for all retailers; for example, those in the luxury market, and FMCG brands.

Advantages of Dynamic Pricing

Respond to Demand

With a dynamic pricing strategy, retailers are able to boost sales when demand drops by setting lower, competitive prices. This is a key advantage for retailers with a degree of seasonality and large fluctuations in demand throughout the year.

Respond to Changes in the Market

Similarly, retailers are able to respond to natural fluctuations in the market due to supply and demand across the board. Moving with the market in this way helps retailers to stay competitive and profitable.

Get Ahead of Competitors

If you find that your competitors are changing their prices regularly, dynamic pricing will allow you to stay on top of this and respond with a more competitive price that draws consumers to your business. Price monitoring software, like ours at Price Trakker, can help you do this with competitive intelligence, revenue management controls, and margin rules.

Advantages of Fixed Pricing

Brand Positioning

Fixed pricing is a great strategy for those that want to position their brand perception based on price or value, either as a low-cost provider or as a luxury provider. Think Chanel or Apple for the luxury market, and Aldi as a low-cost brand.

Better Forecasting and Predictability

When your prices aren’t changing constantly, it can be much easier to forecast and plan for the future based on historical data and buying patterns.

Examples of Fixed Pricing and Dynamic Pricing

To help you decide which strategy is right for you, we’ve listed a few examples of fixed and dynamic pricing.

Examples of Fixed Pricing

Luxury brands such as Chanel, Land Rover, Rolex
Companies with strong brands that don’t rely on price changes – Apple, Nike, MAC
Food and drink services such as Starbucks, Nandos, McDonalds

Examples of Dynamic Pricing

eCommerce such as retailers on Amazon, eBay, etc
FMCG such as toothpaste, deodorant, shower gel
Brands in the travel industry such as train tickets, airline tickets, holiday packages, etc
Taxi companies that surge charges at popular times

How is Dynamic Pricing Done?

Dynamic pricing is largely done with the use of a price monitoring tool that detects changes in the market, demand, and competitor’s prices, determining an optimal, competitive price point.

Price Trakker-QL automatically detects changes in response to real-time supply-demand and market elasticity, and it’s machine learning capabilities helps retailers to maximize revenues by determining optimal price points, based on integrated data, forecasting, competitors, industry controls, and a set of both standard and bespoke margin rules.

Product Price Monitoring with Price Trakker

Price Trakker offers one of the UK’s best price monitoring software solutions that allows you to implement dynamic pricing successfully, keeping on top of market changes and trends, changes in supply and demand, and your competitors’ prices.