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Should You Use Dynamic Pricing?

Will engaging in dynamic pricing help or hurt your business?

This story appears in the October 2005 issue of Entrepreneur. Subscribe »

Personalized pricing--also known as customized or dynamic pricing--enables e-tailers to charge different customers different prices for the same products based on information collected about them, such as what they've purchased in the past, their price sensitivity and so on. First-time buyers at a website could see higher prices than the company's repeat customers. Or price-conscious consumers may get lower prices, while people that demand more customer service could pay higher prices but receive longer warranties and express shipping for their items.

The practice may be making headlines, but it's also controversial--and plenty of e-tailers engaging in it aren't comfortable admitting it. A study of adult online consumers released this spring by the Annenberg Public Policy Center of the University of Pennsylvania found that 87 percent of respondents said they did not think personalized pricing was OK.

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