Dynamic pricing is the practice of adjusting prices in real time based on factors like demand, competition, seasonality, and customer behavior.
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Angela Sokolovska
Ecommerce expert
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Pricing has always been one of the most powerful levers in ecommerce. The right price can increase conversions, maximize revenue, and position your brand competitively. But in today’s fast-moving online marketplace, static pricing alone isn’t enough. Competitor discounts, seasonal demand shifts, and real-time market changes can all make a fixed price strategy risky.
This is where dynamic pricing in ecommerce comes in. Dynamic pricing is the practice of adjusting prices in real time based on factors like demand, competition, seasonality, and customer behavior. Unlike static pricing, which keeps prices fixed until manually updated, dynamic pricing allows merchants to stay competitive and capture more value in changing conditions.
In this article, we’ll break down what dynamic pricing is, why it matters, and how ecommerce businesses can use it responsibly to improve revenue and profitability. We’ll also cover different pricing models, the technologies that enable dynamic pricing, and real examples from the market.
Dynamic pricing isn’t new. Airlines and hotels were early adopters, using yield management systems in the 1980s and 1990s to adjust fares and room rates based on demand and availability. A last-minute airline seat or hotel booking could cost significantly more or less than the same product booked weeks in advance.
With the rise of ecommerce, the concept has expanded dramatically. Amazon reportedly changes product prices millions of times per day, adjusting based on competitor pricing, stock levels, and demand. Ride-hailing platforms like Uber popularized surge pricing, where fares increase automatically when demand outstrips supply.
Today, even smaller ecommerce merchants can adopt elements of dynamic pricing thanks to accessible AI-driven pricing engines, competitor monitoring apps, and platform integrations.
Why It Matters in Ecommerce
In the ecommerce world, shoppers can compare prices instantly across competitors. Static pricing can leave money on the table if demand rises, or cause you to lose customers if competitors undercut you.
Dynamic pricing helps merchants:
Stay competitive in markets where price transparency is high.
Capture more margin when demand is strong.
Move inventory faster when demand is soft.
Benefits of Dynamic Pricing for Ecommerce Businesses
Dynamic pricing isn’t just about changing prices quickly, t’s about using data to align your prices with real market conditions. When implemented carefully, it can unlock significant advantages for ecommerce merchants.
Maximizing Revenue and Profit Margins
Dynamic pricing allows merchants to capture more value during periods of high demand. Instead of leaving money on the table with static pricing, prices can scale upward when shoppers show a higher willingness to pay.
According to Omniconvert, a Harvard Business Review–based study found that dynamic pricing can increase profit margins by up to 25%.
For ecommerce, this could mean raising prices on trending products during peak sales events or maintaining profitability on limited-stock items.
Staying Competitive in Fluctuating Markets
Price transparency in ecommerce means shoppers can compare you against competitors with a single search. Dynamic pricing ensures you’re not consistently overpriced relative to competitors or undercutting so aggressively that you lose margin.
According to PwC’s Voice of the Consumer 2025 research, consumers consistently prioritize price above other factors such as sustainability or product origin – underscoring the ongoing influence of strategic pricing decisions in keeping customers engaged.
Leveraging Customer Demand Patterns
Dynamic pricing gives merchants the ability to align prices with buying behavior and seasonality. Prices can be lowered to move inventory when demand slows, or increased when seasonal peaks drive urgency.
IntelligenceNode reports that Amazon reviews the prices of millions of its products every two minutes, reflecting the fast pace of its dynamic pricing strategy.
Even smaller merchants can adopt simplified versions of this approach, such as adjusting prices around Black Friday or back-to-school shopping periods.
Pro Tip: Dynamic pricing should always be balanced with customer trust. Sudden or extreme fluctuations can frustrate buyers. Using A/B testing to validate acceptable price ranges before deploying them dynamically can help protect long-term relationships.
Common Dynamic Pricing Models
1. Time-Based Pricing
Rocky Mountain Chocolate Factory implemented a dynamic, cost-based pricing model, adjusting prices on a quarterly schedule to account for fluctuating cocoa costs. Following their March and June 2025 pricing adjustments, they achieved a 200 percent increase in retail gross profit (to $300,000 for the quarter ending May 31) and raised gross margins from –5.8% to 6.9 %.
2. Demand-Based Pricing
According to Sellbery, Amazon’s dynamic pricing system updates prices for millions of products approximately every 10 minutes, resulting in about 2.5 million price changes per day. This reflects an extremely high-frequency approach to pricing that keeps Amazon competitive and responsive.
This model allows Amazon to ramp up prices when demand surges and lower them when demand softens – maximizing both revenue and volume.
3. Competitive Pricing Adjustments
Retailers frequently adjust prices based on their competitors’ actions – especially in highly price-sensitive categories. For example, Walmart’s pricing algorithm continuously monitors competitor prices, stock availability, demand signals, pricing history, and even store reviews. It then dynamically adjusts its own prices in real time, which is why you may see the same item change price within hours.
4. Segmented Pricing Based on Customer Behavior
Segmented pricing offers tailored incentives to different customer groups such as tiered loyalty members – boosting engagement and sales.
Sephora’s Beauty Insider program offers three distinct tiers – Insider, VIB, and Rouge – each with progressively better perks. For instance, Rouge members (who spend $1,000+ annually) enjoy benefits like 20% off during exclusive sales events and early access to new product launches.
Technologies and Tools That Enable Dynamic Pricing
AI-driven pricing engines
AI-driven pricing engines take the guesswork out of setting prices. These tools analyze massive amounts of data—competitor prices, inventory levels, customer demand, and even seasonality – to recommend optimal pricing in real time. For example, platforms like Pricemoov and Dynamic Yield allow merchants to automatically adjust product pricing to balance conversion rates with margins. Instead of manually testing prices, AI continuously learns and adapts, ensuring your store remains competitive while protecting profitability.
Ecommerce platform integrations
Dynamic pricing only works if it fits seamlessly into your existing ecommerce tech stack. Many ecommerce platforms, including BigCommerce and Shopify, support integrations with pricing optimization apps. These integrations allow you to sync price rules across your storefront, apply discounts to specific segments, and push updates instantly without manual edits. With apps like BlackCurve or Omnia Retail, pricing becomes part of your automated workflow – freeing your team to focus on strategy, not spreadsheets.
Real-time competitor monitoring tools
Competitive intelligence is the backbone of effective dynamic pricing. Tools like Prisync and Price2Spy scan thousands of online stores and marketplaces to track competitor prices, promotions, and stock levels. This real-time monitoring gives merchants the visibility to react quickly – whether that means matching a discount, offering a slightly better deal, or holding firm if competitors are out of stock. By connecting competitor monitoring with your AI-driven pricing engine, you create a closed-loop system where your prices automatically adjust based on market shifts.
Ready to maximize your revenue with an optimized storefront?
Start testing, tracking, and optimizing your Shopify storefront today with Shogun A/B Testing.
Seth Moore, ex-Chief Strategy Officer at Overstock.com, shared that he oversaw automated pricing adjustments driven by real-time demand, inventory levels, and competitor activity. This approach allowed Overstock to strategically align prices across its catalog, particularly boosting performance for promotional and clearance inventory.
Seth Moore: “I recommend keeping base prices consistent so that consumers don’t feel discriminated against: “Why is that person getting a better price than me?” You should factor in promotions and shipping costs when setting your base prices.“
Key takeaway: Automated pricing, when fine-tuned with competitive and demand data, leads to more agile revenue and inventory control.
2. Alibaba / Tmall – AI-Powered Dynamic Pricing in Experiments
In a field experiment on Alibaba’s Tmall.com, researchers used deep reinforcement learning to adjust prices continuously. They compared AI-driven pricing against manual strategies and found the AI approach outperformed traditional methods in both revenue and conversion rates.
Key takeaway: Advanced AI models like reinforcement learning can optimize pricing in continuous, real-time ways – beyond static or rule-based approaches.
Boohoo and PrettyLittleThing, partnered with AI provider Peak to enable real-time price adjustments based on trends, demand, and competitor pricing. While intended to deliver better value, industry watchers raise concerns about the potential for “surge pricing” during peak periods.
Key takeaway:AI-enabled dynamic pricing offers precision but needs careful implementation to maintain customer trust.
Tracking and Measuring Results
Dynamic pricing is a continuous process of testing, measuring, and refining. Once you’ve implemented pricing rules, the next critical step is to monitor performance using the right key performance indicators (KPIs). Without measurement, you’re essentially guessing whether your strategy is helping or hurting revenue. Let’s break down which metrics to track, how to interpret them, and how to use that data to refine your pricing model for maximum impact.
KPIs to Monitor
Conversion Rate (CR) This tells you the percentage of visitors who make a purchase. If your conversion rate rises after a pricing change, it’s a strong signal that the new price point is more attractive to your audience. On the flip side, if conversions drop, it could indicate prices are too high – or that the timing of your changes clashes with buyer expectations.
Profit Margins Revenue growth is meaningless if your margins disappear. For example, if lowering the price boosts sales volume but slices margins in half, the strategy may not be sustainable. Track gross profit margins to ensure you’re balancing demand with profitability.
Average Order Value (AOV) Dynamic pricing isn’t only about selling one product at the right price. Adjustments can influence how much customers spend overall. For instance, offering volume discounts or personalized bundles can raise AOV. Monitoring this metric helps you understand whether pricing changes encourage customers to buy more per transaction.
Sales Volume Total units sold is another key indicator. A spike in sales volume after a discount may show the pricing was competitive enough to drive purchases. However, this metric should always be considered alongside profit margins—otherwise, you risk “winning the race to the bottom” by selling more at unsustainable prices.
Customer Lifetime Value (CLV)(optional but powerful)
While harder to calculate, CLV reveals whether your pricing strategy attracts customers who come back. For example, a temporary discount might lower short-term margins but bring in repeat buyers who generate long-term profit.
Adjusting Pricing Rules Based on Performance Data
Once the data is in, the real work begins: making decisions.
If Conversion Rates Fall: Test whether your prices are too high compared to competitors. Consider A/B testing different price points or experimenting with psychological pricing tactics (e.g., $49.99 instead of $50).
If Margins Shrink Too Much: Re-evaluate your discounting strategy. You might need to reduce the frequency of promotions, raise the minimum spend for discounts, or adjust bundle pricing so it still feels like a deal without cutting too deep into profits.
If AOV Stagnates: Try introducing dynamic cross-sells or volume-based discounts. For instance, “Buy 2, get 10% off” can nudge customers to add more items to their cart.
If Sales Volume Rises but CLV Declines: This might mean your discounts are attracting bargain hunters who never return. In this case, segment your dynamic pricing by customer type, rewarding loyal buyers while limiting incentives for one-time shoppers.
If Competitor Prices Shift: Use competitor price monitoring tools to ensure you stay competitive without reacting emotionally. Sometimes it’s better to maintain steady pricing and differentiate through service, shipping, or product quality rather than slashing prices.
Ready to maximize your revenue with an optimized storefront?
Start testing, tracking, and optimizing your Shopify storefront today with Shogun A/B Testing.
