Dynamic Pricing for Real Estate | Maxify


Find out different strategies and opportunities of using dynamic pricing for real estate development to maximize your profits. In this post, you will get to know the benefits of dynamic pricing, which types of dynamic pricing exist, pros and cons of dynamic pricing, and other useful information.

How to use dynamic pricing: strategies, examples, models

Dynamic pricing strategy is important for many businesses and industries. Customers should be interested in product demand and purchase it for an affordable price. A dynamic pricing strategy allows businesses to increase their income by adjusting prices to market changes in real-time.

Nowadays there are several reasons why pricing changes became one of the most essential tools to work with. One of them is making quicker and more profitable changes in terms of sales. For example, if some items are overstocked, it is necessary to offer discounts. Another benefit is a better understanding of industry trends. You will be able to get valuable information about the products.

Some dynamic pricing algorithms help to improve the pricing decisions quality in e-commerce environments with the capability to change prices regularly and gather feedback data. These capabilities allow a company to react to demand changes more precisely, reduce errors, and automatize price management for catalogs with thousands of items.

Real estate market is quite dynamic and constantly in progress. At the same time, the issue of pricing in the real estate market significantly depends on a system of factors, in particular, market dynamics, location of real estate, exchange rate, development of environmental infrastructure, construction stage, developer reliability, etc. Taking into account the influence of all these factors, it is possible to implement the right strategies for dynamic pricing.

One of the most vivid examples where dynamic pricing plays a great role is Airbnb. This company uses dynamic pricing to help its hosts get the best income on investment for their short-term rental properties, some of which are occupied by guests for only one day. In that case, dynamic pricing is more important when owners of residential properties have longer-term occupancies or even contracts of 10 or 15 years.

More explanations and examples of dynamic pricing models are presented below. Now, let’s move on to the dynamic pricing definition.

What is dynamic pricing?

Dynamic pricing is the process of selling the same product at different prices to different groups of people. This pricing strategy allows businesses to set flexible prices depending on current market demands. Changes in supply and demand are the key factors in the pricing strategy. In this model, prices are constantly fluctuating. They can be changed in some minutes, hours, or days, based on the market where a business operates.

Dynamic pricing is the process of selling the same product at different prices to different groups of people.

Dynamic pricing includes many technologies to get a spontaneous range of prices. It enables businesses to customize prices based on dynamic pricing algorithms and machine learning, taking into account the competitor price. It is not appointed to work for every business or industry. By the way, some spheres feel its positive impact. For instance, traveling, e-commerce businesses, retail, electricity, and public transportation. Usually, this pricing model is designed for wealthier consumers because they have more resources to deal with price variations. Consumers who cannot afford some products might wait for discounts or sales to buy a product or service.

Pros and cons of dynamic pricing for real estate

Today, there is a great range of real estate choices. So, each of us wants to choose the best house to live in. Usually, customers are worried about which developer to choose and, most important, of course, about the price.

Let’s look at the list of advantages and disadvantages of dynamic pricing.

Advantages of dynamic pricing

Get to know your customers better

Implementing your dynamic pricing model gives you the possibility to track and compare your customers’ behavior. This will present you an overview of many things such as:

– Frequency and timing of the purchases.

– The minimum and the maximum price that your customers can pay.

– A detailed overview of the demand curve.

This process will improve your dynamic pricing machine and create a better pricing strategy with each insight.

Moreover, you do not have to do all these things by yourself, there are dynamic pricing tools that could help you.

Maximize profits

If competitors offer goods and services at an extensively higher price, then a dynamic pricing strategy can be used to maximize profits.

You can modify the price according to the purchase models of potential customers.

Try to provide the most appealing price and encourage more customers to choose your services.

Grow your revenue

By investigating your dynamic pricing machine with each insight, you can better understand your customers’ preferences and limits.

Finally, this will help you to create a more accurate pricing strategy. Besides that, you will have a slightly unfair advantage against your competitors.

You will always be aware of their prices and manage a specific set of rules to regulate your price according to your strategy.

Based on this fact, you can stay a leader in the market for a long time.

Disadvantages of dynamic pricing

Customer alienation

People cannot stand the situation when they know that someone paid half price for the identical thing they bought. They feel like they have been ripped off. So, there is a risk of losing your potential clients and, as a result, your reputation. But, you can set some limits to keep things under control.

Price wars

If a business lowers the price of its products, its competitor tries to lower it even more. This process continues until one business reaches a point when it cannot be on a market anymore.

Certainly, if a business can compensate for low prices and provide persuasive offers, it will enhance its market share. But if something goes wrong, many companies go bankrupt and disappear from the market every year.

Types of dynamic pricing strategies

All pricing strategies can be considered in different ways. Each of them may be applied to reach various goals. These are some important dynamic pricing models accepted by market leaders:

  • Segmented pricing. The essence of the strategy is characterized by different prices for identical products, with the same production and distribution costs. The target audience is customers who live in different geographical areas. The pricing differs according to a customer’s current location and it is considered a good strategy to attract potential clients who pay more attention to a service or product than others. It allows enlarging income in areas where people accept price fluctuations.
  • Time-based pricing. This dynamic pricing strategy is related to the age of a product or its entry into the market. Thus, by applying discounts and establishing lower prices of older products, businesses can have an increase in their sales. When new things appear in the market, the prices of older ones can be lowered to get rid of that excess inventory.
  • Peak pricing. During peak hours or seasons, businesses can observe high demand for their special products. This type of pricing is directly related to market demand. This means that consumers have a limited choice and lack of comparisons on the market providing similar products or services.
  • Random fluctuations in market conditions. Now we live in uncertain times, and already know how sensible a market can be. So, if for any reason sales start to fall, companies should start to decrease their prices until things get back to the stable.
  • Penetration pricing. This pricing strategy is considered for new products with primarily lower prices compared to the market price. Usually, it is used when businesses want to reach a significant part of the market to propose to customers their list of offerings. When demand in the market increases, prices increase too.

When do you need dynamic pricing?

All of us like expensive purchases. To make the purchase profitable, we monitor and compare prices everywhere. The best way to make a bargain is to wait for discounts. Usually, when companies launch new products on the market, older collections become almost twice cheaper.

Important to know! Dynamic pricing works perfectly when it is used in concert by all players in the industry. Also, dynamic pricing works properly when demand fluctuates essentially in comparison to a fixed amount of supply. In this situation, sellers reduce prices as demand falls and increase them as demand increases.

Examples of dynamic pricing

 eCommerce: A lot of businesses regulate their prices using different dynamic pricing software and tools according to competitors, market price, seasons, and internal market offers (new collections, outlet seasons, etc.).

Events: dynamic pricing helps the event industry to get more income in case of urgency and scarcity. For instance, buying tickets for many fans is a last-minute deal.

Hotels: here prices depend on seasons, also holidays, special days, or events.

Airlines: lots of people used to plan their flights. But business people often need to reserve flights at the last minute. So, up to pricing strategies, ticket prices change in minutes.

Google Ads: the price of ads is decided by the market’s current supply and demand rate. For example, if you want your potential customers to find your products with the keyword “presents’ ideas” in the New Year period, you can pay much more than on a typical day.

 How to implement dynamic pricing for real estate

Today, there are a lot of competitors in the market, and day by day it is more and more difficult to keep up. This can be guided properly with the right dynamic pricing software. Checking thousands of different products is a challenging assignment. But dynamic pricing tools give you the most correct options in real-time and enable you to solve any problems. These tools are one of the most crucial elements of a great strategy.

Now, let’s examine how you can implement dynamic pricing for real estate.

  1. Defining a commercial objective

You should clearly understand the aim of your business and what customers can expect from your project.

Here, the most important is the strategy which you will choose and in what way you gonna achieve the goals.

  1. Building a pricing strategy

In this step, we will define your pricing strategy based on your commercial objective. If you want to establish your business and dominate the market, you should set competitive prices on the products. Then, once they buy, you can redirect and encourage your clients to purchase your less popular products.

 For instance, imagine that you have potential clients who want to buy an apartment. The price is higher than they expected and you can offer the same one but in another district. As we know, the price for a flat in most cases depends on the geographical area.

  1. Choosing pricing methods

The most familiar methods are:

· Competitor based-pricing: price regulation depends on the competition.

· Value-based pricing: the importance of the customer attitude to the product.

· Cost-plus pricing: production costs of the product + the desired margin

  1.  Implement, test, and monitor

Actually, that is it. All you have to do is to analyze and validate your strategy. See if everything works correctly.

After some time, check and assess your results to make sure if you are achieving your goals. So you can also review and improve your strategy to get better results. 

All in all, we covered all important aspects of dynamic pricing, including types of strategies, algorithms, models, and how to implement dynamic pricing in the business. Now you are ready to deal with dynamic pricing and all its components and achieve any professional goals.