AI-Powered Dynamic Pricing Makes Businesses More Profitable

If you thought businesses show the same price tags to different visitors, you could be in for a rough awakening.

Every business does certain things differently. Some strive to be as fair and transparent as possible; others are looking for ways to maximize their profit. A dynamic pricing model streamlines the process all by itself. But now, there's a new player in town to pair up with it – artificial intelligence.

AI doesn't mean that killer robots are out to get you. But it does provide many opportunities for automating what was not doable before. In the past, you'd need to have a whole crew looking at analytics in the back of your office to come to any meaningful conclusions. Today, AI is here to take the workload off your hands.

It's more awe-inspiring than scary. But do not be mistaken – in the right hands, AI can be quite a weapon indeed. A weapon for corporate domination.

The Missing Link Between Analytics and Personalized Marketing

Imagine tapping into each customer's buying tendencies and adjusting the price based on that. Without AI, it would be next to impossible. How would you go about preparing a personalized marketing campaign targeting an individual if you didn't know who will visit your website next?

Sure, you could personalize it based on the source of traffic you're getting. O based on an already-existing email list of contacts. But what about the organic traffic you're getting through the search engines? Only the heavens know the answer to what visitor you'll end up getting next.

But nowadays, AI is already mainstream. You don't need to personalize the offer and adjust the prices in situations like the one mentioned above. AI will take care of it for you. At the same time, it also acts as your research and analytics assistant without you having to lift a finger. And that's not even mentioning the fact there are no administrative or labor costs associated with using it. That makes it almost a no-brainer choice for business owners.

A Couple of Practical Examples of Dynamic Pricing

Have you noticed how often the price changes when checking out plane tickets? It could be due to fluctuating supply and demand, but no one's to say that AI doesn't play its part in the process. When you enter the relevant search terms (the final destination and the timeframe of your flight), the AI now knows that you're interested.

Through tracking and analytics, it has a couple of options, for example:

•  offering you a higher price for the same plane ticket upon returning to the website a second time;

•  lowering the cost a bit and hunting you down through retargeting ads.

In the former scenario, it can milk you for all you're worth as a customer who's already been "through the door." And in the latter, it wants to lure you back to avoid letting the competitors take your money.

Then we have Uber, the popular ride-hailing app. It offers much lower prices than the ones by the conventional taxis. But Uber also adjusts prices based on supply and demand. In other words, it takes into account how many drivers are available in the region and how many people are seeking their services. For instance, in the middle of a torrential downpour, there may be fewer drivers willing to take a chance driving in sub-optimal driving conditions. It would ramp up the price. In the case of excessive air pollution, which prompts the masses to stay inside more, the cost would be lower due to a decreased demand.

And then there's the phenomenon of dynamically-adjusted game pricing in an online store. Businesses can base it on as little as your geographical location. For example, $29 is cheaper than €29, but it still makes a difference for the company. Though this particular case of dynamic pricing also happens to be the easiest to bypass.

The Consumers Use Tools to Prevent Price Manipulation

Nowadays, customers are more conscious about their privacy. More people understand how remarketing and dynamic pricing works. They are not happy businesses collect and use their data to generate more profit. That is why many customers use privacy-focused tools. These tools can clash with analytics and slow down the growth of big data.

Privacy-conscious customers block third-party cookies on their browsers or use private browsers and search engines altogether. It makes it difficult for advertisers to track them. Thus, it leads to less information for personalized marketing campaigns.

Thanks to tools like NordVPN, price manipulation is particularly easy to bypass. The fact of the matter is that websites and online stores examine IP addresses to determine geographical location. A VPN has an added benefit of shielding your real IP, all while offering a vast pool of IP addresses from different regions to choose from. Customers can cycle through the ones available until they're happy with the result. The use of VPNs is especially prevalent with services like streaming. It helps customers to unlock movie and TV show libraries that are cheaper or bigger in a specific region

Dynamic pricing is already accessible, and AI is only powering it further. The more data a company has for analytics, the more profitable dynamic-pricing will be. But prevalent use of privacy tools and data protection laws create new challenges for data scientists and companies. It's essential to use AI-powered dynamic pricing and other tools to stay profitable and competitive in the market. But at the same time, don't underestimate the need to be transparent about the use of customers' data.