Inflation and economic uncertainty have put pressure on retailers to find creative ways to protect margins while staying competitive. Dynamic pricing – a strategy that adjusts prices based on demand, competition and other market factors in real time – is becoming an increasingly popular solution. Retailers use it to stay agile, ensuring their prices remain competitive while optimizing revenue and profitability.
However, dynamic pricing also raises concerns, particularly around customer trust. Shoppers may view frequent price changes as unpredictable or unfair, especially in brick-and-mortar stores where price stability has traditionally been the norm. Success depends on how well retailers communicate, the tools they use and the strategies they adopt to balance transparency and profitability.
Transparency is Key
Customers already are familiar with dynamic pricing online, particularly on platforms like Amazon, where prices change constantly. But in a physical store, the concept can feel less intuitive. Clear communication is crucial to overcoming this perception.
Transparency should be at the heart of any dynamic pricing strategy. Retailers need to openly share why prices are changing and how this benefits customers. Framing the strategy as a commitment to staying competitive and delivering value, rather than maximizing profit, can help shift the narrative. Highlighting price decreases or cost-saving opportunities is especially effective in building trust.
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Signage and in-store communication play a big role here, as do advertisements and online messaging. Retailers should use these channels to explain the “why” behind pricing shifts and reassure customers they’re getting the best value.
Dynamic pricing isn’t just a technical shift, it’s also a cultural one. Store teams need to understand the strategy and how to explain it to customers. Well-trained employees can handle questions and alleviate concerns, making customers more comfortable with the changes.
The Role of Technology
Dynamic pricing isn’t just a shift in strategy. It requires the right tools and a thoughtful approach to implementation. Many grocers in Europe, where this is more common, roll out dynamic pricing gradually, starting with foundational tools like electronic shelf labels (ESLs). ESLs are a critical enabler of dynamic pricing, allowing retailers to update prices across thousands of items in real time. Initially, these labels are often introduced as a labor-saving tool, reducing the need for manual price updates. Once established, they can be fully leveraged for frequent price adjustments.
In North America, however, adoption of ESLs has been slower due to their high upfront costs. While ESLs are common across European grocers, they remain relatively rare in the U.S., with most grocers using them in limited regions or stores. This incremental approach can help ease both employees and customers into the transition, creating a smoother path to full-scale dynamic pricing.
Price optimization software is another must-have for implementing dynamic pricing effectively. These tools use data to calculate the best price for each product by considering demand, competition, margin goals and how the system is configured to align with the overall pricing strategy.
Without these technologies, managing the complexity of dynamic pricing becomes nearly impossible. Retailers must not only determine optimal pricing but also align those decisions with broader business objectives, whether that’s driving traffic, enhancing value perception or protecting profit margins.
Balancing Transparency and Profitability
One way to strike a balance between dynamic pricing and customer trust is by tying pricing strategies to loyalty programs. Personalized offers tailored to individual shopping habits can help ease concerns about fluctuating prices while driving repeat purchases. When customers see clear, meaningful benefits, like discounts on their favorite products, they are less likely to feel frustrated by price changes.
Another effective approach is focusing on key value items (KVIs), high-visibility products with well-known prices such as eggs, milk or bread. These items play a critical role in shaping customers’ perception of a store’s affordability. Retailers often price KVIs aggressively, even accepting minimal or negative margins, to establish a reputation for value and encourage store traffic.
For instance, Costco’s $4.99 rotisserie chicken and Trader Joe’s 23-cent bananas are prime examples of KVIs creating a “halo effect.” When customers see low prices on these essentials, they assume the rest of the store offers similarly competitive pricing.
At the same time, retailers can maintain higher margins on less visible or specialty items, which customers are less likely to compare with competitors. Items like niche ingredients, private label goods or prepared foods offer flexibility in pricing because they are harder for customers to benchmark. For example, a shopper might not know the typical price of red curry paste or a store’s signature deli sandwich, allowing retailers to strategically offset losses on KVIs with these higher-margin products.
Retailers in the U.S. have an opportunity to learn from their counterparts in Europe, where dynamic pricing and electronic shelf labels (ESLs) are more common. In these markets, customers have adapted to frequent price changes, and grocers have fine-tuned their strategies for balancing transparency and profitability. By studying these examples, North American retailers can avoid pitfalls and accelerate their adoption of proven best practices.
Dynamic pricing offers a powerful way for retailers to protect margins and stay competitive, but its success hinges on building and maintaining customer trust. By focusing on transparency, investing in technology and equipping staff to communicate effectively, businesses can turn pricing changes into an advantage rather than a risk.
Based in San Francisco, Amanda Mosseri Oren is the VP of Industry Strategy for Grocery North America at RELEX Solutions, with over 20 years of experience in merchandising, ecommerce, cross-channel operations, category management and system implementations. She has worked with leading U.S. retailers in both in-house and consulting roles, delivering impactful strategies and operational improvements. Oren holds an MBA from the Kellogg School of Management at Northwestern University and a BS in Operations Research and Industrial Engineering from Cornell University.
