Dynamic Pricing

Definition

Dynamic pricing means changing a product’s price frequently, often automatically, in response to demand, stock, time or competitors’ prices. A single observed price is therefore a snapshot, and meaningful analysis needs prices recorded repeatedly together with their time and conditions.

In plain terms

Airlines, ride-hailing services and online shops all reprice with software. Studies of one large marketplace found many sellers using algorithms to follow competitors. The consequence for data: “the price” of a product is not one number. It depends on the moment, the place, the seller, whether tax and shipping are included, and sometimes the customer.

Two honest collectors who look at different moments will report different prices. To compare observations, record what kind of price it is, the currency, the location, and when it was seen, and keep the conditions fixed from one observation to the next.

Example

One product’s price, observed every 6 hours for a day. A 6-hour promotion occurred.

Common misunderstandings

• “A price is a fixed attribute of a product.” It is an observation at a time, under conditions.
• “The lowest price seen is the real price.” It is the lowest observed; it may have lasted an hour.
• “Everyone sees the same price at the same moment.” Location, seller and sometimes the customer can change it.