een a pioneer, adjusting prices multiple times each day based on a range of factors including customer browsing habits. This offers numerous advantages for businesses, such as capitalising on higher consumer willingness to pay in periods of peak demand. Conversely, in times of lower demand, prices can be reduced to clear inventory. This boosts revenue and reduces the risk of overstocking or stockouts. Keeping consumers happy But from a consumer sentiment perspective, there are potential pitfalls. Dynamic pricing can be viewed as price gouging. Ticketing companies in particular have been criticised for capitalising on high demand for concert tickets. During a time of drought, when supply is low, the cost of fresh produce and basic goods such as bread and milk often rises. However, retailers must consider the ethical implications of this at a time when consumers are struggling in a cost-of-living crisis. Is it right to increase prices? How much cost increase could be absorbed in other ways? These days, consumers have the means to research, track and share price changes. Social media channels are peppered with screenshots of price hikes perceived as “unfair” or exploitative. Many online guides also offer tips for avoiding “price discrimination”, encouraging consumers to use different devices or VPNs to avoid tracking. To address this, brands need to communicate their pricing strategies clearly and ethically: this is key to maintaining trust. Offering price guarantees can mitigate concerns. Being aware of consumers’ actual capacity to pay is also critical. The inflation challenge Another challenge posed by dynamic pricing is its interaction with rising inflation. Inflationary periods can lead to increased costs for retailers, who need to adjust prices to maintain profit margins. But during such times customers are generally much more price-sensitive, so retailers face the delicate task of balancing the need to cover increased costs with the risk of alienating their customer base. During inflationary periods, smaller, more frequent price adjustments might be more palatable to consumers. Retailers can also use AI algorithms to identify opportunities for cost savings that can be passed on to consumers, such as more efficient supply chain management. Segmenting customers Segmenting customers based on their price sensitivity and purchasing patterns can allow for more targeting pricing strategies that are more palatable to consumers. Some consumers are more cost-conscious than others. By restricting premium pricing to the least price-sensitive segments, retailers can maintain sales volumes while protecting margins. Many booking platforms encourage users to segment themselves by selecting whether they are travelling for business or leisure. A business traveller, who may not be paying for their own ticket and needs to travel on specific dates, is likely to be less price conscious than a leisure traveller who needs to pay for several family members but has more flexibility in timing. Dynamic pricing vs discounting Despite the advantages of dynamic pricing, many retailers continue to push e-commerce offers and promotions, even though it means thinner profit margins. As customers continue to purchase online, it may not be necessary to always offer discount incentives. Retailers should instead consider robust dynamic price-matching algorithms that can not only scrape data and analyse the best price from competitors but also identify the right source for comparison. For example, third-party providers selling an obsolete product at a discount could trigger algorithmic price wars within the current catalogue. Part of retailers’ e-commerce strategy should also include determining the optimal price and product catalogue, not simply based on the existing numbers used in stores but also on the operating costs of different digital channels. During challenging economic times and periods of high inflation, retailers may also need to balance the need to maintain profit margins with the risk of alienating price-sensitive consumers. It’s important to continuously monitor the effectiveness of dynamic pricing strategies, which includes tracking customer responses, sales data and market trends. Dynamic pricing can be a valuable tool for retailers but should be applied judiciously and transparently. Addressing consumer sentiments and inflation requires a delicate balance between optimising revenue and maintaining customer trust.