If retailers have learnt one thing over the past five years, it’s that the only constant is disruption. From the pandemic to the Suez Canal blockage, inflationary shocks and rising tariffs, the sector has weathered wave after wave of volatility. Margins have thinned, input costs have climbed and consumer loyalty has become more fragile than ever.
In this unforgiving landscape, agility is no longer a luxury – it’s a survival strategy.
Pricing is at the heart of retail agility. Done well, it not only preserves profit but also helps build trust, boost loyalty and even reduce waste. Done poorly, it invites customer backlash and strategic drift.
Dynamic pricing, algorithmically adjusting prices based on real-time data, offers a way to navigate uncertainty while staying competitive. Previously only within the domain of airlines and e-commerce giants, it’s now within reach for a broader range of the industry.
Here, our SVP Data and AI Strategy, Gavin Jackson, explores why dynamic pricing is an essential tool for retailers today, and how brands can begin implementation.
Static pricing versus dynamic pricing
The traditional pricing playbook is showing its age. Static pricing with annual reviews and manual markdowns can’t keep pace in a world where costs change weekly, competitors adjust prices hourly and consumers demand value minute-by-minute. Retailers with thin margins must juggle rising input costs, shifting demand and fierce competition from online platforms that can reprice at will.
Dynamic pricing offers a solution. Powered by AI and real-time data, it allows retailers to adjust prices intelligently based on a wide range of relevant factors. Retailers that implement dynamic pricing typically report 2–5% increases in revenue and 5–10% improvements in gross margins.
These strategies help retailers reduce waste and maximise margins, while also providing an opportunity for real-time learning, fine-tuning offers and optimising at speed. Taken a step further, personalised promotions help drive repeat purchases – all possible without the manual labour of individual price adjustments.
Combined with the ability to reduce inventory waste, improve sell-through and nudge customers toward higher-margin items, the economic logic becomes overwhelming.
The challenges of dynamic pricing
Yet for all its appeal, dynamic pricing introduces a real tension. Change prices too frequently and customers may feel manipulated. Fail to adjust at all, and a retailer can bleed margin or lose volume. Customers must believe that pricing is fair, even as it flexes. Managing this trade-off between margin protection and customer trust makes dynamic pricing both a powerful tool and a delicate one.
Technical integration is another stumbling block. Many pricing systems must integrate with legacy Enterprise Resource Planning (ERP), Point-of-Sale (POS) and e-commerce platforms, which is no trivial task.
Getting dynamic pricing right
Overcoming these hurdles lies in achieving a coherent strategy and leveraging the right tech.
Dynamic pricing strategy
Retailers must first understand their customers - what they value, where they are price sensitive and which items shape their perception of value. This understanding is the foundation for defining where to compete on price (typically key value items), where to drive margin and where to personalise.
Leading retailers have found success in avoiding customer-level price discrimination and instead delivering personalised promotions via loyalty programs. Transparency matters, as do sensible guardrails: capping price changes within a day or shielding staple goods from frequent fluctuations can preserve trust.
Dynamic pricing technology
With legacy systems so often a roadblock, retailers should begin with a readiness audit: assess the quality and availability of data, run controlled pilots and build confidence before scaling. Quick wins, a seasonal category or short shelf-life product line can demonstrate impact and ease adoption.
It’s also crucial to ensure the right technical components are in place, such as:
- a data architecture capable of capturing sales, inventory, competitor prices and sentiment
- AI tools that model elasticity and network effects
- execution systems such as electronic shelf labels (ESLs) or loyalty-linked digital promotions
Sophistication is growing - today’s systems can simulate trade-offs between clearance markdowns, supply chain costs and customer behaviour to recommend prices that optimise across multiple objectives.
Perhaps most critically, dynamic pricing is no longer just about individual SKUs. Graph-based pricing models treat assortments as interconnected webs, adjusting the price of one item based on its influence over others in the basket. This ‘whole-basket’ intelligence reflects how real people shop and helps retailers lift the entire transaction value, not just move units.
Ensuring value from the investment
Dynamic pricing provides a strategic response to a world in flux. With the right data, tools and governance, it becomes a forward-looking capability, able to simulate, optimise and adapt in real time. Retailers who treat pricing as a static decision will increasingly be outmanoeuvred by competitors, cost shocks and customers trained to expect agility.
However, despite its considerable promise, execution is not plug-and-play. It demands coordination across data, systems and strategy, which requires strategic and engineering expertise.
We’ve been helping our customers design and integrate complex systems for over two decades and bridge the gap between AI potential and retail pragmatism.
Today, we’re driving change for our customers using accelerators Morpheus and Compass to assess existing infrastructure quickly, guide AI model development and ensure the technical stack aligns with business goals. We couple these tools with deep industry expertise to help retailers embed new pricing tactics that support customer trust, operational stability and long-term value creation.
For leaders weighing the next move in their pricing strategy, the advice is simple: start small, but start now. Those who act decisively will turn pricing from a cost centre into a competitive edge. Those who hesitate risk being left behind.
Visit our industry page to learn more about our innovative retail solutions. Alternatively, learn how to reduce costs and drive growth with our latest e-book for retail leaders.