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What is Algorithmic Pricing?

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Algorithmic pricing is the use of automation to set prices dynamically based on factors such as customer behavior. It has been a common practice in the airline industry since the early 1990s where it is known as yield management. Algorithmic pricing is common in highly competitive industries such as travel and ecommerce.
Pricing algorithms may be extremely complex or relatively simple. In many cases, they may be self-learning or may be continually optimized by a/b testing.


As an example of algorithmic pricing, different customers may be shown different prices based on their recent behavior or user profile. The same customer may also get different prices based on actions such as visiting the same page twice.


Algorithmic pricing may be unpopular with customers as people tend to value stability and fairness. Price changes based on everything a customer clicks tends to result in a schizophrenic customer experience. As such, brands that ambitiously optimize metrics such as conversion rate using pricing algorithms may miss big picture issues related to reputation, experience and loyalty.
Aggressive price changes may also attract regulatory attention as an unfair business practice depending on the factors that are used in pricing. For example, changing the price could potentially be viewed as false advertising.
Overview: Algorithmic Pricing
An algorithm that sets pricing based on factors such as customer behavior, customer profile or supply.
May optimize conversions and average price.
Poor customer experience
Potential compliance issues related to unfair business practices such as false advertising.
Related Concepts


This is the complete list of articles we have written about pricing.
Algorithmic Pricing
Bargaining Power
Benchmark Price
Price Fixing
Cost-plus Pricing
Price Gouging
Customary Pricing
Decoy Effect
Everyday Low Price
Marginal Utility
Willingness To Pay
Dynamic Pricing
High-Low Pricing
Market Value
Flat Pricing
Loss Leader
Predatory Pricing
Price Discrimination
Snob Effect
Market Price
Price Competition
Price Leadership
Premium Pricing
Price Economics
Price War
Revenue Management
Veblen Goods
Price Floor
Price Promotion
Price Sensitivity
Price Skimming
Price Umbrella
Pricing Power
Pricing Strategy
Sticky Prices
Value For Money
More ...
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