Example
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.Risks
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 | ||
Type | ||
Definition | An algorithm that sets pricing based on factors such as customer behavior, customer profile or supply. | |
Value | May optimize conversions and average price. | |
Risks | Poor customer experiencePotential compliance issues related to unfair business practices such as false advertising. | |
Related Concepts | ||
