Dynamic Pricing & AI: The Future of E-commerce

Dynamic Pricing & AI: The Future of E-commerce

April 18, 2018

Estimated reading time: 6 minutes

Every e-commerce business owner will be looking for real tangible ways they can increase the success of their business.

They might consider changing their store layout or hiring a copywriter to write compelling product descriptions.

But one often underutilized method for new e-commerce store owners especially is using artificial intelligence and dynamic pricing.

To many of you, ‘artificial intelligence’ and ‘dynamic pricing’ may well be simply buzzwords with no real practical meaning.

You no longer need to spend hours looking at your competitor’s pricing, and your warehouse prices to determine the best price point you should use. You can now use a combination of machine learning, AI and algorithms to predict prices and take care of the most important thing: your customers.

In this post, we’re going to help you understand what the two ideas mean and provide you with a framework to start implementing them both into your business so you can see increased success too.

Let’s dive in,

What is dynamic pricing

Dynamic pricing is a flexible e-commerce pricing strategy that works on pricing your products at the optimum price point taking in account your own costs and your competitor’s prices through the use of big data.

The benefits of using dynamic pricing are increased profits and revenue because e-commerce business owners are able to stay competitive and price their products in accordance with sales volumes, competition and market trends.

How Dynamic pricing works in e-commerce

In e-commerce, retailers generally look at their own internal sales data as well as external factors to consistently change their prices when the market fluctuates. But more than that, it’s not just an approach that focuses on price changes, but competitor analysis too.

Dynamic pricing in e-commerce shifts away from static pricing (where items are at a fixed cost) and instead uses data to price items. Therefore, the more data that can be analyzed, the better optimal prices will be shown.

This means that pricing is no longer dependant only on how much stock there is. It uses a range of advanced analytics about the product, the buyer and competitors to determine the best price point at any given time.

What is Artificial Intelligence

Artificial Intelligence (AI) is an approach whereby technologies are developed that can perform tasks that require human cognitive behavior such as visual perception, decision-making and speech recognition.

artificial intelligence and dynamic pricing

It’s also an approach that should be heavily considered if you’re in the e-commerce business as it will allow you to get smarter and faster when completing core business tasks.

Artificial intelligence in e-commerce is a proactive approach to decision making. A reactive approach would be using a web analytics tool (like Google analytics) to identify weak areas and attempt to fix them.

Whereas, a proactive approach through artificial intelligence would look for patterns in customer behavior and provide you with a list of actions you could take to reach your desired goal.

In this post, we’re going to look at how e-commerce store owners can use artificial intelligence alongside dynamic pricing to increase their overall profits and business success.

Artificial intelligence can be used to make all sorts of predictions when it comes to e-commerce.For example you could predict:

  • What a customer will likely purchase next
  • What device or channel a user is most likely to visit your site from
  • What sort of price point they’d be willing to pay
  • What time they’re more likely to hit purchase

How do artificial intelligence and dynamic pricing boost the success of an ecommerce store

Using a combination of artificial intelligence and dynamic pricing you can effectively use data to improve the success of your e-commerce store.

First, you can use AI to personalize your pricing. This means the technology will be able to alter prices based on the current users on your website and their various different behavior.

artificial intelligence and dynamic pricing

In real use cases, you could increase prices when you know your competitor’s stocks are running low.For consumers who want the product right away, if they go to one website and find it unavailable, they will be more than likely happy to buy it from your store for a higher price, if they know they can get the item sooner.

It also helps you gain a competitive advantage. When your conversions are low, you can use AI partnered with dynamic pricing to lower prices to increase conversions up to a rate you’re happy with.

Again, the benefits of doing this through AI is that it’s automatic, flexible and completely scalable.

Think about Amazon. It’s reported that Amazon often changes their prices of products every 10 minutes. However, for smaller retailers, this approach might not be the best way forward, as although Amazon might not have the highest profit margins, they certainly have a majority market share, meaning they can afford to alter their prices regularly without taking a hit to their overall profits.

When your e-commerce store grows and you start to have hundreds, if not thousands of product lines, manually altering these prices is a difficult task and takes away the time you should be spending on other important tasks.

Because the e-commerce world becomes more and more saturated every single day, for a business to succeed, it needs to be both smarter and quicker than its competitors.

When you start implementing AI into your e-commerce strategy, you develop a greater understanding of e-commerce buying trends. You’ll be able to identify patterns in data to reveal pricing gaps in the market and opportunities you may have missed.

When your AI software has identified these various patterns, algorithms will be made based on the data to facilitate the price determination process to predict prices based on that information.


Ultimately, using AI in within your e-commerce business will help you better fit the needs of your potential customers.

In this post, we’ve looked at what artificial intelligence and dynamic pricing are and how you can use the two together to increase your overall profit margins.

The world of artificial intelligence and dynamic pricing can be daunting for many at first, but after reading these benefits, why don’t you try and implement it to your business today.

1 Comment
  1. Grace
    May 12, 2019

    Great information is simple and understandable language. it was really helpful.

Leave a Reply

Related Stories

July 13, 2021

Marketing Mix: Why Is Pricing the Most Important Pillar

September 6, 2019

Target Rate of Return Pricing: A Strategy Used by Experts

The target rate of return pricing sounds a bit complex when you hear it for the first time. The good news is that it's not. Learn more->