IDEAS home Printed from https://ideas.repec.org/a/eee/jouret/v99y2023i4p580-593.html
   My bibliography  Save this article

Dynamic pricing: Definition, implications for managers, and future research directions

Author

Listed:
  • Kopalle, Praveen K.
  • Pauwels, Koen
  • Akella, Laxminarayana Yashaswy
  • Gangwar, Manish

Abstract

Dynamic pricing has evolved with technology from earlier price negotiations. To maximize revenue and provide specialized shopping experiences, businesses today use algorithms and data analysis to adapt prices. We define dynamic pricing as price changes that are prompted by changes or differences in four key underlying market demand drivers: (1) People (i.e., individual consumers or consumer segments), (2) Product configurations, (3) Periods (i.e., time), and (4) Places (i.e., locations). The transition from static pricing (uniform prices) to dynamic pricing (changing prices) is evident from different examples, such as online retailers personalizing offers based on customer behavior, and algorithms using facial recognition for personalized pricing in physical stores.

Suggested Citation

  • Kopalle, Praveen K. & Pauwels, Koen & Akella, Laxminarayana Yashaswy & Gangwar, Manish, 2023. "Dynamic pricing: Definition, implications for managers, and future research directions," Journal of Retailing, Elsevier, vol. 99(4), pages 580-593.
    • Handle: RePEc:eee:jouret:v:99:y:2023:i:4:p:580-593
    DOI: 10.1016/j.jretai.2023.11.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022435923000544
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretai.2023.11.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Manish Gangwar & Nanda Kumar & Ram C. Rao, 2021. "Pricing Under Dynamic Competition When Loyal Consumers Stockpile," Decision Analysis, INFORMS, vol. 40(3), pages 569-588, May-June.
    2. Matthew Selove, 2019. "Dynamic pricing with fairness concerns and a capacity constraint," Quantitative Marketing and Economics (QME), Springer, vol. 17(4), pages 385-413, December.
    3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    4. Martin, Kelly D. & Kim, Jisu J. & Palmatier, Robert W. & Steinhoff, Lena & Stewart, David W. & Walker, Beth A. & Wang, Yonggui & Weaven, Scott K., 2020. "Data Privacy in Retail," Journal of Retailing, Elsevier, vol. 96(4), pages 474-489.
    5. Ram C. Rao & Ramesh V. Arjunji & B. P. S. Murthi, 1995. "Game Theory and Empirical Generalizations Concerning Competitive Promotions," Marketing Science, INFORMS, vol. 14(3_supplem), pages 89-100.
    6. Mingyu Joo & Dinesh K. Gauri & Kenneth C. Wilbur, 2020. "Temporal Distance and Price Responsiveness: Empirical Investigation of the Cruise Industry," Management Science, INFORMS, vol. 66(11), pages 5362-5388, November.
    7. Gregory Dobson & Shlomo Kalish, 1988. "Positioning and Pricing a Product Line," Marketing Science, INFORMS, vol. 7(2), pages 107-125.
    8. Paulo Albuquerque & Bart J. Bronnenberg, 2012. "Measuring the Impact of Negative Demand Shocks on Car Dealer Networks," Marketing Science, INFORMS, vol. 31(1), pages 4-23, January.
    9. Koen Pauwels, 2004. "How Dynamic Consumer Response, Competitor Response, Company Support, and Company Inertia Shape Long-Term Marketing Effectiveness," Marketing Science, INFORMS, vol. 23(4), pages 596-610, June.
    10. Nuruddeen Usman & Kodili Nwanneka & Nduka, 2023. "Announcement Effect of COVID-19 on Cryptocurrencies," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 3(3), pages 1-4.
    11. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    12. Briesch, Richard A, et al, 1997. "A Comparative Analysis of Reference Price Models," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 24(2), pages 202-214, September.
    13. Krista J. Li & Sanjay Jain, 2016. "Behavior-Based Pricing: An Analysis of the Impact of Peer-Induced Fairness," Management Science, INFORMS, vol. 62(9), pages 2705-2721, September.
    14. Manish Gangwar & Hemant K. Bhargava, 2023. "Pricing on‐demand services: Alternative ways of combining usage and access fees," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 11-27, January.
    15. Martins, Manuel M.F. & Verona, Fabio, 2023. "Inflation dynamics in the frequency domain," Economics Letters, Elsevier, vol. 231(C).
    16. Anonymous, 2023. "Covid-19 and the effectiveness of ERM frameworks," British Actuarial Journal, Cambridge University Press, vol. 28, pages 1-1, January.
    17. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
    18. Michael D. Grubb, 2009. "Selling to Overconfident Consumers," American Economic Review, American Economic Association, vol. 99(5), pages 1770-1807, December.
    19. Dennis W. Carlton & James D. Dana, 2008. "Product Variety And Demand Uncertainty: Why Markups Vary With Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 535-552, September.
    20. Alessandro Acquisti & Hal R. Varian, 2005. "Conditioning Prices on Purchase History," Marketing Science, INFORMS, vol. 24(3), pages 367-381, May.
    21. Koen Pauwels & Shuba Srinivasan & Philip Hans Franses, 2007. "When Do Price Thresholds Matter in Retail Categories?," Marketing Science, INFORMS, vol. 26(1), pages 83-100, 01-02.
    22. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    23. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
    24. Emilio Calvano & Giacomo Calzolari & Vincenzo Denicolò & Sergio Pastorello, 2020. "Artificial Intelligence, Algorithmic Pricing, and Collusion," American Economic Review, American Economic Association, vol. 110(10), pages 3267-3297, October.
    25. Eric A. Greenleaf, 1995. "The Impact of Reference Price Effects on the Profitability of Price Promotions," Marketing Science, INFORMS, vol. 14(1), pages 82-104.
    26. Jiaru Bai & Haresh Gurnani & Shuya Yin, 2022. "Retail Distribution Strategy with Outlet Stores," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 281-303, January.
    27. Juanjuan Zhang, 2011. "The Perils of Behavior-Based Personalization," Marketing Science, INFORMS, vol. 30(1), pages 170-186, 01-02.
    28. K. Sridhar Moorthy & I. P. L. Png, 1992. "Market Segmentation, Cannibalization, and the Timing of Product Introductions," Management Science, INFORMS, vol. 38(3), pages 345-359, March.
    29. Kopalle, Praveen K. & Kannan, P.K. & Boldt, Lin Bao & Arora, Neeraj, 2012. "The impact of household level heterogeneity in reference price effects on optimal retailer pricing policies," Journal of Retailing, Elsevier, vol. 88(1), pages 102-114.
    30. David R. Bell & James M. Lattin, 2000. "Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity," Marketing Science, INFORMS, vol. 19(2), pages 185-200, May.
    31. Winer, Russell S, 1986. "A Reference Price Model of Brand Choice for Frequently Purchased Products," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(2), pages 250-256, September.
    32. Sridhar Balasubramanian & Shantanu Bhattacharya & Vish V. Krishnan, 2015. "Pricing Information Goods: A Strategic Analysis of the Selling and Pay-per-Use Mechanisms," Marketing Science, INFORMS, vol. 34(2), pages 218-234, March.
    33. Ningyuan Chen & Guillermo Gallego, 2019. "Welfare Analysis of Dynamic Pricing," Management Science, INFORMS, vol. 65(1), pages 139-151, January.
    34. Vincent R. Nijs & Shuba Srinivasan & Koen Pauwels, 2007. "Retail-Price Drivers and Retailer Profits," Marketing Science, INFORMS, vol. 26(4), pages 473-487, 07-08.
    35. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    36. V. Krishnan & W. Zhu, 2006. "Designing a Family of Development-Intensive Products," Management Science, INFORMS, vol. 52(6), pages 813-825, June.
    37. Manish Gangwar & Nanda Kumar & Ram C. Rao, 2021. "Pricing Under Dynamic Competition When Loyal Consumers Stockpile," Marketing Science, INFORMS, vol. 40(3), pages 569-588, May.
    38. Didier Laussel & Joana Resende, 2022. "When Is Product Personalization Profit-Enhancing? A Behavior-Based Discrimination Model," Management Science, INFORMS, vol. 68(12), pages 8872-8888, December.
    39. Kelly L. Haws & William O. Bearden, 2006. "Dynamic Pricing and Consumer Fairness Perceptions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 33(3), pages 304-311, October.
    40. Chongwoo Choe & Stephen King & Noriaki Matsushima, 2018. "Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition," Management Science, INFORMS, vol. 64(12), pages 5669-5687, December.
    41. Shuba Srinivasan & Koen Pauwels & Dominique M. Hanssens & Marnik G. Dekimpe, 2004. "Do Promotions Benefit Manufacturers, Retailers, or Both?," Management Science, INFORMS, vol. 50(5), pages 617-629, May.
    42. Donald Ngwe, 2017. "Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions," Marketing Science, INFORMS, vol. 36(4), pages 523-541, July.
    43. Sungsik Park & Man Xie & Jinhong Xie, 2023. "Frontiers: Framing Price Increase as Discount: A New Manipulation of Reference Price," Marketing Science, INFORMS, vol. 42(1), pages 37-47, January.
    44. Roger J. A. Laeven & Emanuela Rosazza Gianin & Marco Zullino, 2023. "Dynamic Return and Star-Shaped Risk Measures via BSDEs," Papers 2307.03447, arXiv.org, revised Jul 2023.
    45. Marcus Asplund & Richard Friberg, 2001. "The Law of One Price in Scandinavian Duty-Free Stores," American Economic Review, American Economic Association, vol. 91(4), pages 1072-1083, September.
    46. Peter E. Rossi & Robert E. McCulloch & Greg M. Allenby, 1996. "The Value of Purchase History Data in Target Marketing," Marketing Science, INFORMS, vol. 15(4), pages 321-340.
    47. J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, vol. 23(1), pages 134-145, December.
    48. Ernan Haruvy & Boram Lim & Peter T. L. Popkowski Leszczyc, 2023. "The effect of surcharge on price in online auctions," Electronic Commerce Research, Springer, vol. 23(2), pages 1161-1182, June.
    49. Dennis J. Zhang & Hengchen Dai & Lingxiu Dong & Fangfang Qi & Nannan Zhang & Xiaofei Liu & Zhongyi Liu & Jiang Yang, 2020. "The Long-term and Spillover Effects of Price Promotions on Retailing Platforms: Evidence from a Large Randomized Experiment on Alibaba," Management Science, INFORMS, vol. 66(6), pages 2589-2609, June.
    50. Xin Meng & Zilin Tang & Leonard F. S. Wang, 2023. "Sport tickets pricing strategy with home team's crowd effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 839-847, March.
    51. Praveen K. Kopalle & Ambar G. Rao & João L. Assunção, 1996. "Asymmetric Reference Price Effects and Dynamic Pricing Policies," Marketing Science, INFORMS, vol. 15(1), pages 60-85.
    52. Julia P. Schessner & Vincent Albrecht & Alexandra K. Davies & Pavel Sinitcyn & Georg H. H. Borner, 2023. "Deep and fast label-free Dynamic Organellar Mapping," Nature Communications, Nature, vol. 14(1), pages 1-19, December.
    53. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    54. Praveen K. Kopalle & Carl F. Mela & Lawrence Marsh, 1999. "The Dynamic Effect of Discounting on Sales: Empirical Analysis and Normative Pricing Implications," Marketing Science, INFORMS, vol. 18(3), pages 317-332.
    55. Juan M. C. Larrosa & Leandro Meller & Juan I. Uriarte & Gonzalo R. Ramírez Muñoz de Toro, 2023. "Retail coffee pricing dynamics in Argentina," SN Business & Economics, Springer, vol. 3(8), pages 1-21, August.
    56. Bryan K. Bollinger & Wesley R. Hartmann, 2020. "Information vs. Automation and Implications for Dynamic Pricing," Management Science, INFORMS, vol. 66(1), pages 290-314, January.
    57. Eyal Biyalogorsky & Oded Koenigsberg, 2014. "The Design and Introduction of Product Lines When Consumer Valuations are Uncertain," Production and Operations Management, Production and Operations Management Society, vol. 23(9), pages 1539-1548, September.
    58. Michael C.-Y. Yang, 2023. "Inflation Dynamics and Monetary Policy in Taiwan," Financial and Monetary Policy Studies, in: Frank Rövekamp & Moritz Bälz & Hanns Günther Hilpert & Wook Sohn (ed.), Inflation and Deflation in East Asia, chapter 0, pages 89-102, Springer.
    59. Manish Gangwar & Nanda Kumar & Ram C. Rao, 2014. "Consumer Stockpiling and Competitive Promotional Strategies," Marketing Science, INFORMS, vol. 33(1), pages 94-113, January.
    60. Yang Li & Brett R. Gordon & Oded Netzer, 2018. "An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition," Marketing Science, INFORMS, vol. 37(5), pages 812-837, September.
    61. Nunan, Daniel & Di Domenico, MariaLaura, 2022. "Value creation in an algorithmic world: Towards an ethics of dynamic pricing," Journal of Business Research, Elsevier, vol. 150(C), pages 451-460.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yan, Xiaoming & Zhao, Wenhan & Yu, Yugang, 2022. "Optimal product line design with reference price effects," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1045-1062.
    2. Kopalle, Praveen K. & Kannan, P.K. & Boldt, Lin Bao & Arora, Neeraj, 2012. "The impact of household level heterogeneity in reference price effects on optimal retailer pricing policies," Journal of Retailing, Elsevier, vol. 88(1), pages 102-114.
    3. Dmitri Kuksov & Kangkang Wang, 2014. "The Bright Side of Loss Aversion in Dynamic and Competitive Markets," Marketing Science, INFORMS, vol. 33(5), pages 693-711, September.
    4. Bing Jing, 2017. "Behavior-Based Pricing, Production Efficiency, and Quality Differentiation," Management Science, INFORMS, vol. 63(7), pages 2365-2376, July.
    5. van Oest, Rutger, 2013. "Why are Consumers Less Loss Averse in Internal than External Reference Prices?," Journal of Retailing, Elsevier, vol. 89(1), pages 62-71.
    6. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    7. Bernhard Baumgartner & Daniel Guhl & Thomas Kneib & Winfried J. Steiner, 2018. "Flexible estimation of time-varying effects for frequently purchased retail goods: a modeling approach based on household panel data," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 40(4), pages 837-873, October.
    8. Bradlow, Eric T. & Gangwar, Manish & Kopalle, Praveen & Voleti, Sudhir, 2017. "The Role of Big Data and Predictive Analytics in Retailing," Journal of Retailing, Elsevier, vol. 93(1), pages 79-95.
    9. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    10. Bruno Jullien & Markus Reisinger & Patrick Rey, 2023. "Personalized Pricing and Distribution Strategies," Management Science, INFORMS, vol. 69(3), pages 1687-1702, March.
    11. Zhijun Chen & Chongwoo Choe & Noriaki Matsushima, 2020. "Competitive Personalized Pricing," Management Science, INFORMS, vol. 66(9), pages 4003-4023, September.
    12. Martin Natter & Thomas Reutterer & Andreas Mild & Alfred Taudes, 2007. "—An Assortmentwide Decision-Support System for Dynamic Pricing and Promotion Planning in DIY Retailing," Marketing Science, INFORMS, vol. 26(4), pages 576-583, 07-08.
    13. Peter Seele & Claus Dierksmeier & Reto Hofstetter & Mario D. Schultz, 2021. "Mapping the Ethicality of Algorithmic Pricing: A Review of Dynamic and Personalized Pricing," Journal of Business Ethics, Springer, vol. 170(4), pages 697-719, May.
    14. Didier Laussel & Joana Resende, 2022. "When Is Product Personalization Profit-Enhancing? A Behavior-Based Discrimination Model," Management Science, INFORMS, vol. 68(12), pages 8872-8888, December.
    15. Chongwoo Choe & Noriaki Matsushima, 2021. "Behavior-Based Price Discrimination and Product Choice," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(2), pages 263-273, March.
    16. Philipp Aschersleben & Winfried J. Steiner, 2022. "A semiparametric approach to estimating reference price effects in sales response models," Journal of Business Economics, Springer, vol. 92(4), pages 591-643, May.
    17. Marshall Freimer & Dan Horsky, 2008. "Try It, You Will Like It—Does Consumer Learning Lead to Competitive Price Promotions?," Marketing Science, INFORMS, vol. 27(5), pages 796-810, 09-10.
    18. Dubus, Antoine, 2024. "Behavior-based algorithmic pricing," Information Economics and Policy, Elsevier, vol. 66(C).
    19. John Aloysius & Cary Deck & Amy Farmer, 2013. "Sequential Pricing of Multiple Products: Leveraging Revealed Preferences of Retail Customers Online and with Auto-ID Technologies," Information Systems Research, INFORMS, vol. 24(2), pages 372-393, June.
    20. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jouret:v:99:y:2023:i:4:p:580-593. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.