Dynamic vs. Personalized Pricing: How Do They Differ?

A pricing strategy is essential to the success of any business. A massive 85% of shoppers consider pricing when deciding where to shop. Two popular pricing strategies are dynamic and personalized pricing. Dynamic pricing is determined by external and market-related factors while personalized pricing is tailored to each individual customer.

Below, we explore the key differences between dynamic vs personalized pricing, including pricing decisions, customer perception, and implementation, to help you choose and implement the best one for your store.

What Is Dynamic Pricing?

Dynamic pricing relies on algorithms that monitor trends and changes in the market and adapt prices accordingly. This way you can maximize profit by selling the same product at different prices under different conditions.

Airlines often use dynamic pricing to maximize flight revenue by charging higher fares during peak travel times and lower fares during off-peak times. Other industries that frequently use dynamic pricing include hotels, rideshare services, and online clothing retailers.

Saks Fifth Avenue Heats Up Summer Prices

Saks Fifth Avenue, a luxury fashion and designer clothing store, charges premium rates for their summer range at the start of the season, knowing that the demand for these items will be high. However, at the same time, they offer substantial discounts on their winter items.

What Is Personalized Pricing?

You can use individual customer data to offer personalized discounts to stay competitive, improve customer satisfaction and loyalty, and boost sales. If your data indicates that a customer is willing to pay more for a particular product, you can adjust your prices accordingly.

Industries that commonly use personalized pricing include eCommerce, travel, and insurance.

Orbitz Tailors Pricing According to Customer Search

Orbitz, an online travel booking platform, is a good example of personalized pricing in action. A customer searches for accommodation in Las Vegas and is quoted $67 for Palms Place. A second customer searches for the same dates and number of guests, but is quoted a higher price of $72. The difference is the second customer specified they wanted to book for Palms Place, indicating a greater willingness to pay a higher rate.

» Decode personalized pricing further to increase your sales and customer enagagement

3 Key Differences Between Dynamic and Personalized Pricing

1. Pricing Decisions

• Dynamic pricing is based on market demand and other external factors such as seasonality, competition, availability, and even the time of day.
• Personalized pricing is a form of behavioral marketing based on individual customer data and behavior, such as purchase and search history, browsing behavior, and location.

2. Customer Perception

• Dynamic pricing creates a sense of urgency and excitement for customers as prices can change in real time based on demand, encouraging them to act quickly to secure the best deals.
• Personalized pricing can help you instill trust and loyalty in your customers by offering special deals and discounts.

3. Implementation

• Dynamic pricing can be implemented through sophisticated algorithms and AI technology that quickly and accurately process vast amounts of market-related data.
• Personalized pricing also uses advanced data analysis methods like predictive analytics, but the data input differs. It requires individual customer data analysis and audience segmentation based on preferences and behavior.

» Learn more about the exciting future possibilities of AI and retail

Find the Right Pricing Strategy Fast

Dynamic and personalized pricing are two popular pricing strategies you can use to optimize revenue and customer satisfaction. But understanding the differences is important if you're looking to implement an effective pricing strategy that suits your unique needs and goals. Remember, it's essential to be flexible and continuously monitor and adjust your pricing strategy for the best possible results.

» Create irresistible deals with the right pricing strategy & flexible payment methods