Dynamic pricing: balancing agility and fairness 

With ticket prices for the Royal Opera House’s latest production topping £400 per ticket, the practice of “dynamic” pricing has once again come under scrutiny, with customers accusing companies of taking advantage by adjusting prices in real time to reflect demand.  

 

Many sectors are grappling with this very challenge: how to stay agile and responsive to market shifts without alienating customers in the process. From a customer’s point of view, sudden changes in price can feel unsettling. If the cost of a ticket jumps in the space of a few minutes, people can question whether they are being treated fairly. 

 

Finding the right balance is important. Businesses need to protect margins and adapt to changing conditions, but they also have to maintain trust that pricing is fair and grounded in clear reasoning. That balance is not always easy to strike. The same is equally true for businesses that sell to other businesses, as well as consumers. Managing the rapidly shifting costs of raw materials and components across multiple sets of tariffs and trade agreements can leave business leaders struggling to set the right price and still deliver on their buyers’ expectations.

 

 

Why everyone’s talking about dynamic pricing

In today’s business landscape, supply and material costs can change without warning, meaning expenses fluctuate far quicker than they used to and far, far faster than traditional pricing processes were designed for. The highly dynamic nature of costs inevitably demands that businesses respond with more dynamic pricing, in this instance, to help ensure prices are reflective of new costs, while still high enough to generate profit.  

 

Airlines and hospitality have long relied on flexible pricing to manage demand and avoid empty inventory. Other industries are now adopting similar practices as they face the same pressures and, as a result, are having to redesign how they manage costs, inventory, and pricing. 

 

The difference now is speed.

 

AI tools and real-time data present the opportunity for businesses to respond far more quickly than ever before. While that level of agility may seem like progress, it also presents a new set of potential problems. When prices appear to rise without a clear reason, buyers can become suspicious and feel like pricing strategies have become unfair or they may simply seek similar products from other sellers.

 

This can result in lost revenue, shrinking margins, and potentially lost customers. Research shows that 88% of consumers consider trust to be as important as price and quality when deciding whether to buy and trust in vendors is even more important in business-to-business buying when the volume of transactions can be simply huge. 

 

When buyers understand why a price has changed, even if that change is an increase, they can accept it more readily. This level of transparency encourages long-term confidence in the vendor. When used transparently, this kind of dynamic, responsive pricing becomes a way of aligning prices with genuine market conditions, while keeping fairness and customer relationships at the centre. 

 

 

The risk of disconnected decisions 

While companies want to use more dynamic pricing strategies to handle fluctuating supply costs or unpredictable demand, the actual implementation can be challenging. Pricing touches many parts of the business, yet the teams involved in contracts, rebates and quotes frequently work in separate systems that often don’t interact. This can leave a business struggling to both understand the impact of changing costs, as well as making it difficult to implement pricing changes even when they are decided.

 

When these processes fail to line up, small errors can turn into bigger issues. Disconnected systems across contracting, purchasing, sales, pricing, and fulfilment can mean a customer’s price may be updated while the contract still shows the old figure. A rebate may be activated despite the conditions not being met. A quote might be generated using outdated information, causing confusion with both buyer and seller. These gaps can be challenging with pricing changes moving slowly, but in today’s highly volatile global market, the far faster pace of changes magnifies the negative impact of disconnected decision-making.

 

Sales, for example, might adjust pricing to close a deal, whilst marketing may run promotions that shift expectations. On the other hand, finance could focus on short-term margin protection, and operations may be working to manage supply constraints.  In short, different parts of the business, struggling to react to market and material cost changes, may be actively working against each other, instead of in harmony.

 

 

Reuniting the revenue process 

To avoid these gaps, businesses need a clear, consistent view of the entire commerce operations that drive their sales. That view must start with the first quote, move through contract discussions, and end when the final invoice is settled. If any of those stages operate separately, it becomes almost impossible to maintain consistency. 

 

As is often the case when traditional business processes can no longer keep pace with the speed of change, technology can help to close the gaps. A Configure, Price, Quote system (CPQ) provides a single place for pricing decisions to be created and reviewed. Changes to pricing, made in response to sudden changes in supply, demand, or taxation, can be factored into business strategy using Price Optimisation technology, and the impact of changes evaluated by Contract Lifecycle Management (CLM) tools that are able to read, understand, and evaluate contracts using AI. 

 

These technologies work together, sharing a common understanding of each step in the business, to respond intelligently to pricing pressures, evaluate contractual commitments and risk, and deliver optimised pricing to buyers, based on the ideal product mix for that buyer.

 

This kind of “dynamic” pricing seeks to harmonise the vendor’s costs and offerings with the buyer’s needs, with the intention of presenting to the purchasing business a deal that beats every other possible competitor.

 

 

Fairness as a long-term strategy 

In the world of business-to-business commerce, this kind of dynamic pricing, designed to allow sellers to respond faster than their competitors, will become more common as industries face ongoing cost pressures and competition. It allows the vendor to respond faster and more transparently than competitors, and that includes opportunities to reduce pricing when the opportunity is there, always with the intention of winning that all-important buyer trust and, of course, revenue. 

 

When pricing, contracts, and buyer experience all run on the same data foundation, businesses can act quickly without losing control. They can adapt to the speed of market changes, and still hold on to the trust that keeps customers coming back, again and again.

 

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Geoff Webb is Vice President of Product and Portfolio Marketing at Conga 

 

Main image courtesy of iStockPhoto.com and fizkes