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Concept
Dynamic pricing
Summary
Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing, is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. Businesses are able to change prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors in the market. Dynamic pricing is a common practice in several industries such as hospitality, tourism, entertainment, retail, electricity, and public transport. Each industry takes a slightly different approach to dynamic pricing based on its individual needs and the demand for the product.
Dynamic pricing has been the norm for most of human history. Traditionally, two parties would negotiate a price for a product based on a variety of factors, including who was involved, stock levels, time of day, and more. Store owners relied heavily on experienced shopkeepers to manage this process, and these shopkeepers would negotiate the price for every single product in a store. Shopkeepers needed to know everything they could about a product, including the purchase price, stock levels, market demand, and more, to succeed in their jobs and bring profit to the store.
As retail expanded in the Industrial Revolution, storeowners faced the challenge of scaling this traditional haggling system. As assortments expanded and the number of stores grew, it quickly became impossible for shopkeepers to keep up with the store. The negotiation model quickly proved inefficient within an economy of scale.
The invention of the price tag in the 1870s presented a solution: one price for every person. This idea harkened back to a traditional Quaker idea of fairness: Quaker store owners had long employed a fixed-price system in the name of egalitarianism. By charging the same price of all shoppers, Quakers created a system that was fair for all, regardless of shoppers' wealth or status.
Official source
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