Artificial Intelligence in Marketing: Dynamic Pricing

In this era of e-commerce and online businesses, the retail sector is drifting away from the notion of fixed prices and moving towards dynamic prices. As most of us have seen that there are price variations in online services like OYO hotel rooms, flight tickets and cab services like Ola and Uber. Until now, these price variances were due to the supply and demand, and the time-frame in which we are availing the services.

But now, the developments in the field of Artificial Intelligence is changing the way retailers and customers interact. Along with the supply and demand factors that are also taken into the consideration is the maximum price a customer is willing to pay, with the use of algorithms.

In dynamic pricing, what the algorithms do is that they take the customer’s ever-increasing data trail and predict the customer’s willingness to pay for that product or service. These data are gathered from the browsing data, cookies and benign sources like loyalty cards and even postcodes. Online retailers use the responses of customers to the special offers so as to decide upon the prices.

Since these strategies are planned to play on the customer's desire for that next bargain, it is the customer who is at a loss in the long run. These are like poker machines, which occasionally let the gambler to win so as to hook them in. But in the end, are planned to return a specified profit to the house. Dynamic pricing also works in a similar manner. While the customer feels that they have got a good bargain on a laptop, the seller exploit the customer's price- insensitivity towards smaller items like headphones or mouse.

So, is it possible to set the correct price in this age of dynamic pricing? The answer to this lies in itself.

References:

1. 3 Executive Insights for Application of Artificial Intelligence in eCommerce referred on December 2, 2017, from https://www.huffingtonpost.com/daniel-faggella/3-executive-insights-for-_b_11093154.html
2. How Dynamic Pricing Uses Machine Learning to Increase Revenue referred on December 2, 2017, from https://sweetpricing.com/blog/2017/02/machine-learning/