"Dynamic" Pricing Gets More Real

In ye olde Web 1.0 days, dynamic pricing was one of the things that was going to reinvent business as we knew it. Clever software algorithms would closely monitor supply stocks and demand for an item, and adjust a price up or down in order to maximize profit at any given time.

That never really happened, but it came close. Some companies experimented with dynamic pricing (notably, Amazon has done so several times in the past, charging different prices to different buyers), but on the whole nothing has come of the idea.

That may be changing. Though prices aren't changing by the minute, businesses are turning to computers to help set prices in the first place and make adjustments over the long term. iWon (via AP) has the story, using an example of a company selling three power drills as an example: Sales of the cheapest and most expensive drill did fine, but the middle-tier drill didn't do so well. Price optimization software took a gander, suggested a price cut on the middle item, and saw sales go up, taking profits with it. This kind of software is now credited with raising profits in retail by several percent.

It's also a cogent reminder that what you pay at the store often has nothing to do with the actual value of an item. Prices are set based on competition, perception, and the psychology of the buyer. (If manufacturing costs were a real indicator, a music CD would cost a buck or two.) The story notes that software suggests prices go up as often as they go down.

Something to remember next time you're comparison shopping...

LINK: Pricing Software Could Reshape Retail