What is 'dynamic pricing'?

Dynamic pricing is defined as a flexible pricing strategy that is adjusted in real-time based on various factors such as demand, competition, and customers' willingness to pay. This approach allows companies to optimize revenue by responding quickly to market conditions and consumer behavior.

For instance, airlines and ride-sharing companies commonly utilize dynamic pricing, where ticket or fare prices vary based on the time of booking, current demand, or even individual customer profiles. By leveraging data analytics and algorithms, businesses can automatically adjust prices to maximize sales opportunities, ensuring that they remain competitive in rapidly changing markets.

The other options do not accurately represent dynamic pricing. A fixed pricing strategy contrasts with the principles of dynamic pricing by offering static prices regardless of external factors. Discounting methods target volume increases rather than adapting prices based on immediate market conditions. Finally, relying solely on historical sales data does not account for current market dynamics, which are crucial in a dynamic pricing framework. Thus, the correct choice emphasizes the adaptability and responsiveness inherent in dynamic pricing strategies.