What is a Dynamic Pricing Engine (and Why Your Business Needs One)

Pricing strategies are no longer straightforward. Market conditions shift regularly, competition is fierce, margins are tight, and customers expect the best deal at the right time. 

The old method of setting prices based on fixed costs and a standard markup just doesn’t work anymore. Businesses need a way to adapt, and that’s where a dynamic pricing engine steps in.

A dynamic pricing engine uses real-time data to adjust prices based on market demand, competitor pricing, and even stock levels. 

This is already taking hold of the retail sector, where 21% of retailers had deployed dynamic pricing solutions as of 2021, with a further 27% in the evaluation phase. 

In this post, we’ll explain dynamic pricing engines, how they work, and why they’re becoming an essential tool for businesses looking to stay ahead today. 

The ABCs of Dynamic Pricing Engines

At its core, a dynamic pricing engine is a sophisticated software tool that automatically adjusts prices in real time based on various factors. 

These engines use complex algorithms to analyze a multitude of data points, including:

• Market demand
• Competitor pricing
• Inventory levels
• Customer behavior
• Time of day or season
• Production costs
• Supply chain fluctuations
• Historical sales data
• And much more

The result? Prices that are always optimized for maximum profitability and competitiveness.

The Role of CPQ in Dynamic Pricing

Unlike retail environments with fixed product catalogs, B2B often deals with highly configurable products. 

A single item might have hundreds or even millions of possible variations, each affecting the final price. This presents a challenge for implementing dynamic pricing strategies.

For B2B manufacturers, it’s not about dynamically pricing a vast array of individual products. Instead, the focus is on pricing a wide range of customization options while ensuring that prices are updated based on real-time data inputs.

You can only imagine the hassle of manual pricing for businesses that offer massive, customizable catalogs. Frameless Hardware Company (FHC) is an archetypal example. 

FHC President and CEO, Christian Rodriguez, described the complexity they faced:

“It’s a business based on custom hardware—custom-sized doors and openings with multiple options for glass types, handle types, colors, heights, widths, etc. All that quoting was previously done through Excel. But the problem was the prices were never up-to-date from the manufacturing side.”

Business models like this is where Configure, Price, Quote (CPQ) systems become indispensable.

Configure, Price, Quote (CPQ) systems are the frame that holds complex configuration, pricing, and quoting together.

CPQ systems like Epicor CPQ can retrieve dynamic pricing data from your systems while ensuring that this price is correctly applied to complex, configurable products.

Here’s how it works:

1. Configuration: The CPQ system guides users through the process of configuring complex products, ensuring all chosen options are compatible.
2. Dynamic Pricing: As the product is configured, the dynamic pricing engine calculates the optimal price based on the specific configuration and current market conditions.
3. Quoting: The CPQ system then generates an accurate, professional quote incorporating the dynamically calculated price.

This workflow allows businesses to handle even the most complex pricing scenarios with ease and accuracy. It allows B2B businesses to apply dynamic prices across their products while delivering customization. 

Let’s move on to dive deeper into the business case for dynamic pricing engines. 

Why Your Business Needs a Dynamic Pricing Engine

Now, you might be thinking, “My trusty spreadsheet has served me well for years. Why fix what isn’t broken?” 

Well, that mindset could be costing businesses more than they realize. Businesses lose over $12 million yearly due to ‘bad data,’ which, you guessed it, includes bad pricing. 

Meanwhile, it’s long been known that tiny changes in pricing can dramatically affect a business’s overall profits. 

Imagine a company generating $10 million in annual revenue with a 20% profit margin, meaning $2 million in profit. By increasing prices by just 1%, revenue jumps by $100,000. 

Since most costs remain fixed, nearly all of that $100,000 goes straight to profit, boosting the company’s total profit by 5%. Now, instead of $2 million, they’re making $2.1 million—all from a tiny price change.

That’s the power of small tweaks in pricing—they can lead to massive gains with minimal effort.

However, there are other reasons to implement better pricing strategies than profit, including:

1. Stay Competitive in Real-Time

Markets are more complex and fast-moving than ever. A dynamic pricing engine lets you respond to these changes without delay. You can use external data to adapt your pricing and accelerate the process of quoting deals, passing that speed onto the customer. 

Joshua Martin from CMTP, an Australian packaging company, experienced this firsthand after implementing Epicor CPQ:

“It’s taken a quoting process that might have a turnaround of two days into something that now takes five, 10 minutes max. So that’s a massive, massive difference.”

Imagine being able to adjust your prices in minutes rather than days. That’s the power of dynamic pricing. Customers love it, too, as it saves them time.

2. Personalize Pricing

In the age of product personalization, one-size-fits-all pricing is fast becoming outdated. 

Dynamic pricing engines allow you to offer personalized prices based on customer segments, purchase history, or even individual behavior. 

You can input data from your systems—ERP, CRM, etc—into the CPQ to create more personalized prices for different individual customers, customer segments, and so on. 

This level of personalization can significantly boost customer loyalty and lifetime value. After all, who doesn’t love feeling like they’re getting a special deal?

3. Handle Complex Pricing Scenarios with Ease

A dynamic pricing engine integrated with a CPQ system is a godsend for businesses with complex products or pricing structures. It can handle intricate rules, discounts, and product configurations that reduce the many hours you drain on spreadsheet calculations. 

Christian Rodriguez from FHC explained this exact situation before implementing Epicor CPQ:

“It’s a business based on custom hardware—custom-sized doors and openings with multiple options for glass types, handle types, colors, heights, widths, etc. All that quoting was previously done through Excel. But the problem was the prices were never up-to-date from the manufacturing side.”

With a dynamic pricing engine integrated with CPQ, these complex scenarios become far simpler to manage. An added benefit? You unlock more time and productivity for your team. Time they can redirect to their core competencies. 

4. Improve Customer Experience

As we’ve touched on, dynamic pricing can actually enhance the customer experience. By offering fair, market-aligned prices and quick, accurate quotes, you’re showing customers that you value their time and business.

Adam Halfmann, Senior Director of Program Management at School Specialty, noted:

“Epicor CPQ provided us with valuable pre-sale data we’d never accessed before. Analyzing trends, popular configurations, and customer preferences captured by the system enables us to optimize our product mix, tailor marketing efforts, and deliver a more targeted, personalized customer journey.”

5. Reduce Errors and Inconsistencies

Finally, manual pricing processes are prone to errors and inconsistencies. 

A dynamic pricing engine, especially when integrated with a CPQ system, eliminates these issues by automating the pricing process and ensuring all quotes follow the same rules and logic. The more complex your pricing is, the greater the impact. 

Implementing a Dynamic Pricing Engine: What to Consider

Now, before you begin to implement a dynamic pricing engine, there are a few things to consider. Here are the headlines:

1. Data Quality: A dynamic pricing engine is only as good as the data it receives. Ensure you have clean, accurate data to feed into the system.
2. Integration: Your pricing engine should integrate seamlessly with your existing systems, like your ERP, CRM, and e-commerce platform. This is where a comprehensive solution like Epicor CPQ can be invaluable.
3. Strategy: Dynamic pricing isn’t just about technology—it’s about strategy. Ensure your pricing strategy aligns with your business goals.
4. Testing: Start small and test your dynamic pricing strategy before rolling it out across your entire product line.
5. Transparency: Be transparent with your customers about your pricing practices to maintain trust.
6. Training: Ensure your sales team is well-trained on the new system and understands the benefits of dynamic pricing.
7. Continuous Optimization: The market is always changing, and your pricing strategy should, too. Review and adjust your pricing rules and strategies regularly.

Embracing the Dynamic Pricing Revolution

The bottom line? In today’s fast-paced, data-driven business world, a dynamic pricing engine isn’t just a nice-to-have – it’s a must-have. It’s the difference between setting prices and optimizing them, between reacting to the market and shaping it.

Dynamic pricing becomes even more potent when delivered through a powerful CPQ system like Epicor CPQ. You’re not just pricing products—you’re creating a seamless, efficient, and profitable sales process from configuration to quote.

So, are you ready to say goodbye to static pricing and hello to dynamic success? Your bottom line will thank you, your sales team will thank you, and most importantly, your customers will thank you.

Book a demo with us to explore how Epicor CPQ can redefine your pricing strategies.