Dynamic Pricing in eCommerce — Guide and Examples [2025]

Nailing your pricing has a direct and domino effect on your profitability.

But pricing is not as simple a decision as it may sound. Apart from the cost of production, you need to consider several other factors. On top of that, the challenge is that those factors may keep changing regularly.

That’s where a dynamic pricing strategy can help you optimize your pricing by adjusting to those rotating factors. This way, it ensures you can maximize your revenue and profits.

In this blog post, we’ll help you with various aspects of dynamic pricing in eCommerce — meaning, types, benefits, and challenges of the dynamic pricing model. Plus, a step-by-step guide on how to set up dynamic pricing on your Shopify store.

What is Dynamic Pricing in eCommerce?

Dynamic pricing is an advanced pricing strategy in which the current price of a product is constantly updated on a real-time basis — based on multiple factors including demand, supply, competitor prices, ongoing market conditions, trends, and so on.

The factors considered in the dynamic pricing model may vary from business to business. In some business cases, even weather conditions may be one of the pricing factors. For example, a brand selling agricultural products may consider it a crucial factor.

Dynamic pricing is also known as “real-time pricing,” “surge pricing,” and “demand pricing,” as price fluctuations may occur frequently, based on the demand and other factors.

In its early days, this pricing model was quite popular among airline, hotel, and events industries due to the nature of those businesses and rapidly varying demand conditions.

Now, it’s been widely used in the eCommerce industry in recent times. Initially, it was mainly executed by large eCommerce marketplaces as they could manage advanced technology.

Amazon — the eCommerce giant — is one of the biggest examples of a company using a dynamic pricing model. For example, let’s take a look at this product — the listed price is $64.99.

Using one of the tools — Keepa — we checked the price history of this Amazon product. As you can see, the price has varied significantly over months/years:

But the question is — can even small businesses implement dynamic pricing?

The short answer is — yes. In the present times, with affordable solutions or Shopify apps, it’s become feasible for even small B2C and D2C eCommerce brands to implement the dynamic pricing strategy.

How Does the Dynamic Pricing Model Work?

Dynamic pricing can be generated and managed through Artificial Intelligence (AI), Machine Learning (ML), and algorithms. But that’s the technical side of it. You must understand the logical aspects to truly understand how it works.

Key Factors in Dynamic Pricing

Mainly, the dynamic pricing considers three broad aspects:

• Supplier/Manufacturer

How much inventory is in stock or produced at present — and estimated to be available in the near future?

• Consumers

How much demand is there from the consumers for the product at present — and the demand forecast for the near future?

• Competitors

How much are competitors charging for the product?

Based on all these factors, a price is set in a way that can leverage the availability of inventory, adjust the profitability based on customer demand, and beat the competition with competitive prices.

Static Pricing vs Dynamic Pricing

Static pricing — the traditional pricing model — does not adjust pricing on a real-time basis depending on factors like market demand, trends, and consumer behavior.

This might result in either losing the opportunity to maximize the profit or losing customers to your competitors — because you didn’t adapt to the situation.

On the other end, the dynamic price quickly adjusts the price point based on important market and consumer factors. It offers multiple price points maintaining a good balance between maximizing profits (by increasing the prices) AND keeping the customers with your brand (by reducing prices) as well.

Types of Dynamic Pricing Models

1. Time-based dynamic pricing

Time-based dynamic pricing leverages the idea of “high demand - high price” during certain time periods, occasions, and holidays. For example, during peak seasons, consumer demand is high. So, you can charge higher prices and customers would still love to purchase for the occasion — because their purchase decision would be mainly driven by time and not price.

Similarly, during the off-season, you can drop the pricing to stay competitive in the market. That way, you can balance your sales and profits.

2. Competitor-based dynamic pricing

Ever seen a brand claiming things like this? — “No competitor can match our prices.”

The brand is most likely using competitor-based dynamic pricing, especially if they have lots of products and competitors. In this dynamic pricing model, the system considers the pricing of all direct competitors and adjusts it accordingly to stay competitive in the market.

3. Bundle-based dynamic pricing

Bundle pricing is a strategy where customers are offered pre-built or customizable, build-your-own bundle offers. This bundling strategy could be implemented with dynamic pricing.

When a customer is buying a bundle offer, the pricing could be adjusted or discounted depending on the total order value. For example, buy a bundle worth $100 and get a 10% discount on each item, or $200 and a 20% discount on each item.

4. Volume-based dynamic pricing

Similar to the above example, volume pricing is the strategy where customers are offered different tiers of pricing based on the quantity purchased by the customer.

5. Loyalty-based dynamic pricing

Some brands offer dynamic pricing for loyalty program members. The members can be offered a special price exclusive to them to reward their loyalty to the brand. This is a great way to build brand loyalty and continue generating recurring revenue from existing customers.

6. Group-based dynamic pricing

Some brands offer dynamic pricing to specific groups based on customer demographics, location, or device type. However, this practice can backfire as it falls within the concept of price discrimination, and thus, it often leads to lawsuits and complaints from customers.

7. Location-based pricing

This is somewhat similar to the point we covered in the group-based dynamic pricing. Brands operating in multiple different regions may implement location-based dynamic pricing — but on a much bigger level. 

For example, brands can offer dynamic pricing to different countries based on purchasing power parity (PPP). This can be done with a fair intention to offer affordable pricing to countries with low PPP. 

8. Auction pricing

In the original auction pricing model, people bid higher prices to win the auction. Inspired by this pricing model, some eCommerce businesses also implemented auction pricing. For example, eBay — one of the biggest eCommerce marketplaces — uses the auction pricing model too.

eCommerce Customized Pricing vs Dynamic Pricing vs Personalized Pricing

In eCommerce, you may hear about pricing models like dynamic pricing, customized pricing, and personalized pricing. While these names sound similar, they are completely different concepts. One must not confuse them with each other.

Here’s a brief overview of the key differences between customized, dynamic, and personalized pricing models:

Key Differentiators	Customized Pricing	Dynamic Pricing	Personalized Pricing
What is it?	Customized pricing is a strategy in which the price is set or adjusted differently depending on the specific customer requirements.	Dynamic pricing is a strategy in which pricing is constantly updated on a real-time basis considering factors such as demand, supply, competitor prices, ongoing market conditions, etc.	Personalized pricing is a strategy where brands use historical and other customer data points (e.g., browsing behavior) to provide different pricing to customers for the same product.
Nature of Changes	Since customized pricing relies on specific customer requirements, it does not require to be changed on a real-time basis. It’s done as and when needed.	Dynamic pricing, on the other hand, is updated in real time depending on various factors — but remains the same for ALL customers at a given time.	Personalized pricing functions somewhat similar to dynamic pricing, and thus, it changes frequently.
Suitable Business Models	Customized pricing is more suitable for B2B eCommerce businesses and service businesses. It’s not typically used in the B2C (Business to Consumer) or D2C (Direct to Consumer) eCommerce spaces.	Dynamic pricing is more suitable for B2C and D2C brands. Even B2B eCommerce brands or marketplaces can implement it.  It’s much less likely in the service businesses.	Personalized pricing can be implemented on all the business models we discussed: B2C, D2C, and B2B eCommerce brands.

How to Set Up Dynamic Pricing in Shopify

Here’s the step-by-step guide to set up dynamic pricing on your Shopify store:

Step 1: Define Your Dynamic Pricing Strategy

First things first, you need to figure out which type of dynamic pricing you would like to implement. Consider the business type, target customers, and long-term strategy to make a robust decision.

This decision also affects the type of tool you’d require to implement the dynamic pricing model.

Step 2: Research and Finalize the App

Shopify App Store has many great apps that can help you set up dynamic pricing on your Shopify store.

Go to the Shopify App Store and search the keyword — dynamic pricing — and you may find several options. Choose the one that fits your budget, tech stack, and requirements.

For this tutorial, we’ll go with the "Pricing.AI ‑ Dynamic Pricing" app. The app has a free plan for up to 500 price changes per month. Also, it has a good rating of 4.7 out of 5 stars from 22 reviews.

Step 3: Install the App and Configure Settings

Click on the Install button to proceed with the installation.

Review the access permissions and click on the Install button again.

Step 4: Implement Dynamic Pricing

Now, you can start creating your dynamic pricing rules depending on your strategy. You’ll find two options right at the top:

1. Create Rule for Multiple Products

2. Create Rule for Single Product

Choose the option based on your strategy — and create and publish your dynamic pricing offer to the customers.

Step 5: Monitor and Analyze the Performance

After implementing the dynamic pricing strategy, you must continuously monitor the performance. Compare your sales, revenue, and profits figures before and after implementing the strategy.

Collect customer feedback on how they feel about pricing and value for money. You could use post-purchase surveys to do this. Identify if there are any areas of improvement and work on them to optimize your dynamic pricing strategy.

Why Use the Dynamic Pricing Model?

When you think of the purpose of implementing a dynamic pricing model, you can think of the challenges with a traditional/static pricing model.

The traditional pricing model is rigid. Although it can be updated regularly, you’re still at risk of losing money in adverse conditions. The dynamic pricing model fixes this.

Let’s go through the benefits of the dynamic pricing model in detail:

• Maximize Your Profitability

Since the dynamic pricing model adjusts or increases prices on a real-time basis, it optimizes your opportunities to remain profitable regardless of the changing conditions. It helps optimize per-product profit by adjusting pricing at scale across the store even if you have hundreds of products.

• Increase Your Sales

The dynamic pricing model considers competitor pricing as one of the important factors. Thus, it helps you stay ahead of the competitors and boost your sales and revenue.

• Adopt to Ups & Downs in the Market

The dynamic pricing model is designed to adapt to the changes on a real-time basis. This doesn’t mean it will always increase the prices. Based on the adverse scenarios, it can also reduce the prices which can help enhance customer satisfaction.

• Manage Supply-Demand Fluctuations

The dynamic pricing model helps business owners to keep a balance in the pricing strategy with fluctuations in supply and demand. You can even manage SKU-level price changes.

Challenges in Implementing the Dynamic Pricing Model

While there are multiple benefits of the dynamic pricing strategy, there are a few drawbacks too. You must consider these challenges before and during the implementation of the dynamic pricing strategy:

• Negative Feedback from Customers

If the dynamic pricing is not managed fairly and properly, it can backfire. It can create frustration among your customers when it leads to a huge spike in pricing within a short time. It can lead to an influx of customer complaints.

• Possibility of Damage on the Brand Image

Harvard Business Review suggests that the dynamic pricing model can be perceived as a "corporate profit-boosting scheme" or "cunning commercial scheme" by inflation-fatigued customers.

If customers find your dynamic pricing strategy unfair, it may lead to public outrage. In this social media age, negative reviews can spread fast and damage your brand’s reputation.

• Complex Pricing Requiring Reliable Technology

Since dynamic pricing is generated automatically through software based on various factors, data, and algorithms — it’s crucial to get it accurate every time. You must make sure the technology used for dynamic pricing is reliable as a lot would be at stake when implementing this strategy.

• Consider the Government Regulations

Certain pricing strategies may not be allowed by government bodies depending on where you’re selling as it can be perceived as price discrimination. Check with the local government and legal professionals as needed.

• Selling Through Multiple Channels

If you’re selling through just one channel, for example, an online sales channel only, it would be manageable to deliver dynamic pricing to all your customers. However, if you’re also selling on a marketplace like Amazon or Etsy (along with an eCommerce website), it can be difficult to sync your pricing across different platforms. You need to be mindful of how the marketplace is changing the prices, or else, it can create distrust in customers.

Final Thoughts on the Dynamic Pricing Strategy

The dynamic pricing strategy can help your business grow and scale faster.

First, identify the issue(s) with your existing pricing and research the best dynamic pricing solution for your Shopify store. But keep in mind — just implementing the dynamic pricing is not going to cut it.

You must constantly keep track of your conversion rates and other performance metrics — and most importantly, monitor your customer feedback. Of course, you want to maximize your profits, but not at the cost of customer trust and loyalty.

To learn more about eCommerce marketing strategies, trends, and best practices — check out more resources on the GemPages Blog. Also, join the GemPages Facebook community to network and learn from like-minded entrepreneurs and experts.

FAQs About the Dynamic Pricing Strategy