Advanced dynamic pricing

When we first introduced dynamic pricing, we discussed small adjustments based on competitor prices. The examples of mild competitive pricing and underpriced products are useful general principles, but they don’t fully leverage the potential that comes from combining pricing with other data sources.

How would you price a product in this scenario?

With mild competitive pricing, we would reduce the price to around € 1,300.

But what happens when we factor in sales performance data?

Suddenly, we see that the product still sells even when priced higher than competitors. In this case, there’s no need to lower the price, as we can maintain our margin without sacrificing profitability.

But what happens if we add stock availability data to the equation?

At that point, we see that with the current sales volume, our stock will last only three days, while the next shipment is 39 days away. In this situation, we could even increase the price to manage demand more effectively.

Or, we could negotiate faster delivery with the supplier. The more data we have and the more holistically we approach pricing, the more tools we gain to maximize profitability.

Examples of real pricing tactics

Below are some real-world pricing tactics commonly used in the market. Some have been mentioned in previous chapters, but we include them here for completeness.

There are many conditions and variables you can use in dynamic pricing rules. We recommend starting step by step—first testing simple rules, then gradually combining different conditions once you’ve validated the basics.

• Price band segmentation
  A traditional pricing rule used even in static pricing. Divide your product group into price bands. For example: apply a higher percentage margin for products under € 20 than for those priced between € 20–39. The same logic applies to higher price tiers. This helps solve a common issue where using a flat percentage margin results in very low absolute margins on cheaper products, often not even covering shipping costs.
  
  
• Increasing prices for products that are too cheap
  Sometimes, you might be selling a product significantly cheaper than competitors. In such cases, increase the price just below the cheapest competitor. You’ll still be the cheapest, but you won’t unnecessarily lose margin.
  
  
• Absolute competitive pricing
  For high-traffic, price-sensitive products (e.g., bananas in grocery retail), it may be beneficial to always price around competitors to drive customer acquisition
  
  
• Light competitive pricing
  

  Apply competitive pricing only to products that are already close to the lowest competitor price and reduce prices only where it makes a meaningful difference (e.g., lowering by € 1 instead of aggressively undercutting).

• Competitive pricing with selected competitors
  You don’t always want to compete with all market players. In some segments, it may be relevant to benchmark against specific competitors only.
• Raising prices when competitors are out of stock
  This is especially useful in long-tail niche segments—when no competitor has a product listed or in stock, increase the margin. This significantly boosts both margin and profit.
  
  
• Lowering prices for slow-moving products
  If a product is getting high traffic but not selling, automatically lower the price to stimulate demand.
  
  
• Raising prices for fast-selling products
  For long-tail products, it’s often difficult to track which items are selling well. Set up a rule that monitors sales performance on products with lower impressions, optimizing their pricing accordingly.
  
  
• Controlling overpriced products
  Some products may be too expensive compared to competitors and not selling well. In such cases, consider lowering the price to align with the market. However, apply this only to non-selling products—avoid lowering prices on items that are still selling well despite being more expensive.
  
  
• Incorporating backbonuses/marketing bonuses into pricing
  If you know that reaching a certain sales volume will earn you a supplier rebate, you can factor this into your pricing strategy. You can either lower prices upfront to accelerate reaching the bonus threshold or adjust pricing after hitting the bonus to maximize profit.
  
  
• Optimizing pricing around free shipping thresholds
  Depending on customer behavior, you can increase the price of a product to help customers qualify for free shipping when adding it to their cart or lower the price slightly to encourage customers to add another item to reach the free shipping threshold.
  
  
• Lowering prices for in-store pickup products
  If your store has physical locations (e.g., a pharmacy), it may be beneficial to accept a lower margin on products frequently picked up in-store—as you’ll have the opportunity to sell additional high-margin items during the visit.

The best results come from combining multiple pricing rules to account for various market scenarios.

A common approach is to layer pricing rules. Some rules are conservative, ensuring a stable pricing strategy aligned with your brand positioning. Other rules respond to market exceptions—such as competitor promotions, stock shortages, seasonal demand spikes, or other temporary market changes.

Typically, the logic works as follows: a product tries to match the highest-priority rule first. If it doesn’t meet the conditions (e.g., the product is not currently underpriced), it moves down the priority list until it finds a rule that applies, and the price is adjusted accordingly.

A common approach to combining rules is to place basic rules at lower priority levels and assign more specific or rare rules to higher priorities. These "exotic" rules may trigger only occasionally, but when they do, they can have a significant impact on pricing (e.g., "Increase the price significantly if I am the only seller offering this product.").