Around 61% of European retailers now use a form of dynamic pricing, according to a poll conducted by Valcon. The survey of 350 retailers from across Europe found that although 61% use some form of dynamic pricing such as heuristic or automated dynamic pricing (see image below), less than 15% use algorithmic or artificial intelligence (AI) based dynamic pricing. However, 55% plan to pilot a form of AI/ GenAI-based dynamic pricing in 2025.
Dynamic pricing is not new and airlines and travel firms have long used it to adjust pricing to match burgeoning demand at busy times, like Christmas and school holidays. In the last few years, other industries selling consumer goods like leisure activities, consumer staples, consumer electronics, grocers and DIY have started to adopt it. The efficacy of dynamic pricing has improved in recent years with the use of algorithms, AI and GenAI (generative AI)
Despite a largely negative response from customers, the 55% of retailers who plan to introduce or pilot a form of AI/GenAI-based dynamic pricing approach in 2025 are attracted by the opportunity to grow revenue (AI-based pricing can impact turnover by up to 3%) and boost profits (dynamic pricing can drive margins by 10%).
In 2025, the key trends coming down the track in dynamic pricing will be:
- From AI to GenAI in pricing: while AI-driven pricing strategies have been around for a number of years, we are now starting to see the use of Generative AI (GenAI). What does this mean? In a nutshell, GenAI introduces creativity into pricing strategies offering a more human-like approach. For example, GenAI can create more personalised pricing strategies, generating personalised offers, discounts and price bundles tailored to customer behaviour. For businesses, it can create ‘what if’ scenarios for organisations to test out different pricing strategies for various market conditions, such as if inflation were to go back up to 3%.
- Stronger leverage of data and technologies in pricing: stronger leverage of data and technologies in pricing enhances the accuracy and effectiveness of dynamic pricing strategies. For example, real-time data processing means pricing can be adjusted in real-time, based on factors like inventory, customer demand, supply chain data etc. Increased data sources also result in better-informed price adjustments. Technologies like AI-powered pricing engines will have more of an impact on dynamic pricing, as will big data analytics platforms like Google BigQuery and Snowflake.
- Dealing with deflation and stagflation: the inflationary environment has witnessed high peaks (at its highest, the EU saw figures of around 11.5% in October 2022) and steep drops in the last few years. Central banks have managed to rein it into a level within set parameters in most countries (which is usually around 2%). But slow economic growth means we might be looking down the barrel of deflationary and stagflationary environments this year with there being a surplus of products and raw materials and declining or flat demand. With deflation, dynamic pricing will help organisations focus on stimulating demand and managing inventory without triggering destructive price wars. And in stagflation, dynamic pricing will help organisations balance cost management, profitability and consumer affordability.
- Pricing in a crisis: 2025 will see dynamic pricing help organisations which are facing financial crises. Take the European automotive industry, which is facing numerous pressures – flattening consumer demand, possible US tariffs levied against European goods, declining Euro value and an influx of Chinese vehicles (as Trump tariffs see China trying to offload cars to Europe that would be otherwise destined for the US) means the continent’s car industry is in trouble. Dynamic pricing can be a powerful tool for organisations navigating financial crises by helping them optimise revenue, maintain cash flow and stay competitive under challenging conditions.
Danilo Zatta, consulting partner and pricing expert at Valcon commented: “Dynamic pricing has exploded in the last few years with organisations attracted by the ability to maximise revenue streams and improve their margins. This is borne out by our poll, which shows that 55% of European retailers plan to adopt AI or GenA pricing in 2025. What will test the mettle of dynamic pricing strategies in the New Year is differing inflationary environments and tough sector challenges – but the companies with these pricing strategies in place will be the ones who navigate the environment most effectively.”
If you want to talk to Valcon about how the trends in dynamic pricing will impact your company, please reach out to Danilo Zatta at [email protected].
