What Is Dynamic Pricing and How Can It Boost Your Revenue?

In today’s consumer landscape, dynamic pricing is at work behind the scenes in many everyday transactions. For instance, airline ticket prices may increase by $50 within a few hours based on demand and availability. After large events like concerts, ride-share fares often double due to temporary surges in rider demand. In e-commerce, product prices can drop overnight if an item is left in a cart—an incentive driven by user behavior data. These are all examples of dynamic pricing systems in action, quietly adjusting prices in real time based on changing market conditions.

Dynamic pricing—sometimes called surge pricing or variable pricing—has become a defining feature of modern commerce. From Amazon’s millions of daily price changes to Uber’s infamous surge fares, this strategy is now everywhere. In fact, about and nearly all major airlines and hotels have adopted some form of dynamic pricing, with North America leading the charge. Why? Because variable prices help businesses stay competitive, maximize revenue, and adapt to a world where market conditions change by the minute. In this post, I’ll break down what dynamic pricing really means, how it works, which strategies are out there, and how teams—especially in e-commerce and operations—can use tools like to build their own dynamic pricing systems (without needing a PhD in data science).

Dynamic Pricing Explained: What Is It and Why Does It Matter?

Let’s start with the basics. Dynamic pricing is a strategy where the price of a product or service isn’t set in stone—it goes up or down in response to real-time market factors like demand, supply, competitor prices, or even the weather. Think of it as the opposite of the old-school “fixed price” model, where the number on the tag never budges, no matter what’s happening outside.

Surge pricing is a special case of dynamic pricing. It’s what happens when prices spike sharply during periods of high demand—like when Uber fares shoot up during a rainstorm or after a big event. Surge pricing is all about those short-term peaks.

Variable pricing is the umbrella term for any strategy where prices can change by customer, time, or situation. This includes dynamic and surge pricing, but also covers things like student discounts, regional pricing, or weekday vs. weekend rates. Not all variable pricing is algorithmic or real-time; sometimes it’s just a set of rules.

So why are so many businesses moving away from fixed prices? The answer is simple: fixed pricing leaves money on the table during high demand, and can mean missed sales when demand is low. Dynamic pricing lets companies capture more value, move inventory efficiently, and stay nimble in a fast-changing market. As one industry report put it, “in the modern market, static strategies are simply no longer sufficient” ().

How Does Dynamic Pricing Work? The Mechanics Behind Variable Prices

Behind the scenes, dynamic pricing is powered by data and algorithms. Here’s what typically goes into the mix:

• Customer Demand: When more people want something, prices go up. When demand drops, prices can fall to stimulate sales. This is tracked in real time—think website traffic, bookings per hour, or even social media buzz.
• Supply and Inventory: If you’re running low on stock (like the last few seats on a flight), prices often rise. If you’re overstocked, discounts kick in to move product.
• Competitor Prices: Many companies monitor rivals and adjust their own prices to stay competitive. If a competitor drops their price, your system might match or undercut them.
• Time Factors: Prices can change by hour, day, or season. Happy hour at a bar? That’s time-based dynamic pricing. Airlines and hotels do this with peak and off-peak rates.
• External Events: Weather, holidays, local events, or even breaking news can trigger price changes. A sudden rainstorm might mean higher ride-share fares or more expensive umbrellas.

All this data flows into a pricing engine—a combination of analytics, business rules, and sometimes machine learning. The engine crunches the numbers and spits out an “optimal” price, which is then pushed live to your website, app, or even in-store displays. For example, Amazon is famous for making , all driven by automated systems.

Surge pricing is just a particularly dramatic version of this. When demand suddenly outstrips supply—say, everyone wants a ride at the same time—prices shoot up to balance the market. Once things calm down, prices drop again.

Dynamic Pricing Strategies: From Surge Pricing to Segmented Offers

Dynamic pricing isn’t a one-size-fits-all approach. There are several strategies businesses use, depending on what they’re trying to achieve:

Let’s break down a few of these:

• Demand-Based Pricing: Prices rise and fall with demand. Airlines and hotels are masters of this—room rates soar during conferences, drop on slow weekends. Uber’s surge pricing is the classic example.
• Time-Based Pricing: Prices change by time of day, week, or season. Think happy hour at a bar, or electricity rates that are higher during peak hours.
• Competition-Based Pricing: Your prices adjust in response to competitors. Many online retailers use rules like “always be 5% cheaper than Amazon.”
• Segment-Based Pricing: Different prices for different customer groups—like student discounts, loyalty rates, or regional pricing. SaaS companies often use this for subscription tiers.
• Peak/Seasonal Pricing: Higher prices during holidays, weekends, or special events; lower prices during off-peak times.
• Market/Cost-Based Pricing: Prices adjust to reflect changes in costs or broader market conditions—like fuel surcharges in shipping.

Most companies actually blend several of these strategies, using technology to juggle the complexity.

Real-World Examples: Dynamic Pricing in Action Across Industries

Dynamic pricing isn’t just for tech giants. Here’s how it plays out across different sectors:

• Airlines: Ticket prices change constantly based on demand, booking timing, and remaining seats. For example, early bird fares might be $300, but as the flight fills up, prices can jump to $500 or more. Airlines even use dynamic pricing for baggage fees ().
• Hotels: Room rates fluctuate by season, occupancy, and local events. During a big conference, rates may double; on slow weekends, discounts and packages appear. Some hotels now use AI to adjust prices for services like spa treatments or late check-outs ().
• Online Retailers: Amazon changes prices millions of times daily, reacting to competitor prices, inventory, and demand. Smaller retailers use tools to track and match or beat competitor prices in real time ().
• Restaurants: Some chains offer lower prices during off-peak hours or run dynamic promotions—like TGI Fridays’ limited-time menu, which boosted profits by .
• SaaS Companies: Subscription prices can adapt based on usage, customer segmentation, or market conditions. For example, cloud computing providers like AWS adjust prices for server capacity every few minutes, and many SaaS vendors now offer usage-based or outcome-based pricing ().

Other Examples:

• Ride-Sharing: Uber and Lyft use surge pricing to balance supply and demand, especially during events or bad weather.
• Public Transport: Some cities are experimenting with higher fares during rush hour to ease congestion.
• Energy Utilities: Electricity rates can be higher during peak hours and lower overnight, encouraging users to shift usage.

How Can Dynamic Pricing Boost Your Revenue? Key Benefits for Businesses

So, what’s in it for your business? Turns out, quite a lot.

• Higher Revenue: Studies show that AI-driven dynamic pricing can boost revenue by . Amazon reportedly saw a after implementing its dynamic pricing algorithms.
• Better Profit Margins: By charging more when demand is high and discounting only when needed, businesses can expand profit margins—sometimes by up to .
• Efficient Inventory Management: Dynamic pricing helps move inventory faster. Major retailers have cut excess inventory costs by and can reduce inventory levels by up to .
• Improved Competitiveness: By reacting quickly to market changes and competitor moves, you avoid being undercut and can win more sales.
• Data-Driven Decisions: Dynamic pricing systems rely on real-time data, helping teams make smarter, faster decisions.

Even modest tweaks can pay off. Remember TGI Fridays? Their dynamic menu experiment led to a .

Building a Dynamic Pricing System: The Data Challenge

Here’s the catch: dynamic pricing is only as good as the data feeding it. To make smart price changes, you need:

• Historical Sales Data: To understand demand patterns and price sensitivity.
• Real-Time Demand Data: Website clicks, bookings, and sales velocity.
• Inventory/Supply Data: Up-to-date counts of what’s in stock or available.
• Competitor Pricing Data: Real-time prices from rivals (often gathered by web scraping or APIs).
• External Data: Weather, local events, or even social media trends.
• Customer Data: For personalized or segmented pricing.

Collecting, cleaning, and integrating all this data is a huge challenge—especially for e-commerce and operations teams. Data often lives in silos, comes in different formats (think $12.99 vs. £9.99), and can be messy or delayed. In fact, struggle with data quality when first implementing dynamic pricing.

And don’t get me started on competitor price monitoring. Scraping prices from Amazon, Shopee, Tmall, and dozens of other sites—each with their own quirks—is a full-time job in itself. That’s where automation tools come in.

Thunderbit for Dynamic Pricing: Automate Data Collection and Stay Ahead

This is where I get excited—because this is exactly the kind of problem we set out to solve at .

With Thunderbit’s Scheduled Scraper, e-commerce and operations teams can automate competitor price monitoring and data collection, no engineering required. Here’s how it works:

• Set It and Forget It: Just enter the URLs you want to monitor and set the frequency (daily, hourly, you name it). Thunderbit automatically scrapes competitor prices, product details, and even stock levels.
• One Template, Many Formats: Whether you’re tracking Amazon, Shopee, Tmall, or a niche e-commerce site, Thunderbit’s AI understands the page structure. You don’t need to build a new template for every site—one setup can handle multiple formats.
• Automatic Currency Conversion: Thunderbit can standardize price units (e.g., converting "$12.99 / £9.99" into your target currency) so your data is apples-to-apples.
• Label Standardization: Price fields like “promo price,” “member price,” or “sale price” are automatically recognized and mapped, even if the labels differ across sites.
• No-Code Setup: No scripts, no engineering support needed. Anyone on your team can set up high-frequency, accurate dynamic pricing data feeds.

This means you can build a robust, real-time dynamic pricing system—powered by clean, structured data—without the headaches of manual scraping or data wrangling. And yes, you can export your data straight to Excel, Google Sheets, Airtable, or Notion for further analysis or integration with your pricing engine.

If you want to see how this fits into a broader data automation workflow, check out our or our .

Potential Challenges and Pitfalls of Dynamic Pricing

Dynamic pricing isn’t all sunshine and revenue rainbows. There are real risks and challenges to navigate:

• Customer Perception: If prices swing wildly or customers feel gouged (especially during surge pricing), trust can erode. A found that about 47% of consumers felt dynamic pricing for air travel was unfair.
• Technical Complexity: Building and maintaining a real-time, multi-source data pipeline isn’t trivial. Data quality issues can lead to bad pricing decisions.
• Price Wars: Overly aggressive competition-based pricing can spiral into price wars, eroding margins for everyone.
• Regulatory Concerns: Dynamic pricing is legal in most cases, but price gouging during emergencies or discriminatory pricing is not. Algorithms must be carefully monitored to avoid bias or legal pitfalls.
• Customer Confusion: Frequent or poorly explained price changes can leave customers bewildered or frustrated.

Tips for Mitigating Risks:

• Be transparent—explain why prices change, and highlight when customers can get deals (not just when prices go up).
• Set guardrails—cap how much prices can change in a given period.
• Monitor feedback—watch for negative reactions and adjust your strategy.
• Avoid using sensitive personal data for segmentation.
• Stay up to date on legal requirements, especially around price gouging and discrimination.

For more on the ethics and communication side, I recommend reading .

Frequently Asked Questions about Dynamic Pricing

1. Is dynamic pricing legal in the US and Canada?

Yes, dynamic pricing is generally legal, as long as you avoid price fixing, discrimination against protected classes, or price gouging during emergencies. Transparency and fairness are key ().

2. How often should prices be updated?

It depends on your business. E-commerce sites might update prices multiple times a day; ride-sharing apps do it minute-by-minute; SaaS companies might adjust quarterly. The key is to match the pace of your market without confusing customers ().

3. Can small businesses use dynamic pricing?

Absolutely. Affordable SaaS tools and platforms make dynamic pricing accessible to SMBs. Even simple rule-based strategies (like happy hour discounts or seasonal rates) count. The barriers to entry are lower than ever ().

4. What’s the difference between dynamic pricing and price discrimination?

Dynamic pricing adjusts prices based on market factors (demand, supply, competition, time), while price discrimination means charging different prices to different people or groups. Segment-based dynamic pricing can overlap with price discrimination, but must avoid illegal or unethical discrimination ().

5. Will dynamic pricing alienate customers?

It can, if done poorly. But if you’re transparent, offer deals as well as surcharges, and avoid excessive volatility, most customers will accept it—especially as it becomes more common. About are okay with dynamic pricing if they see it as fair and transparent.

Wrapping Up

Dynamic pricing is no longer just for airlines and tech giants—it’s rapidly becoming the norm across industries, from e-commerce to SaaS to restaurants. The benefits are clear: higher revenue, better margins, smarter inventory management, and a real edge in competitive markets. But to get there, you need accurate, real-time data and a thoughtful approach to strategy and customer communication.

That’s where tools like come in, making it possible for any team to automate the messy parts of data collection and focus on what really matters: building a pricing system that works for your business and your customers.

If you’re ready to take your pricing strategy to the next level, check out or explore more on our . And if you have questions or want to swap dynamic pricing war stories, I’m always up for a chat—preferably at happy hour, when the prices are lowest.

Further Reading: