# How to Create Dynamic Pricing Strategies Using AI
In the fast-paced Australian retail and service landscape, setting a 'static' price and leaving it for months can cost you significant revenue. Dynamic pricing—the process of adjusting prices in real-time based on demand, competition, and inventory—was once reserved for airlines and hotel chains, but thanks to AI, it is now accessible to every Brisbane small business owner. By leveraging AI, you can ensure your prices are always optimised to capture the maximum value while staying competitive.
Why Dynamic Pricing Matters
Dynamic pricing allows you to respond instantly to market shifts. Whether it’s a sudden heatwave increasing demand for air conditioning repairs or a competitor’s flash sale, AI helps you adjust your rates automatically. This doesn't just mean raising prices; it means lowering them to move stock when demand is low and hiking them slightly when your value proposition is at its peak.---
Prerequisites: What You’ll Need
Before you begin, ensure you have the following ready:- Sales Data: At least 6–12 months of historical sales data (CSV or Excel format).
- An AI Platform: Options include specialised software (like Prisync or Sniffie) or a custom setup using ChatGPT Plus/Claude for analysis.
- E-commerce/POS Access: Access to your Shopify, WooCommerce, or Square backend.
- Competitor List: A list of 3–5 direct competitors you want to track.
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Step 1: Define Your Pricing Objectives
Before touching any software, you must decide what you want to achieve. Are you looking to clear old inventory, maximise profit margins on high-demand items, or gain market share from a local competitor? What you should see: A clear document or note outlining your "North Star" metric (e.g., "Maintain a 30% gross margin while staying within 5% of Competitor X’s price").Step 2: Audit Your Data Quality
AI is only as good as the data you feed it. Export your sales history and check for gaps. Ensure your data includes the date of sale, the price sold, any discounts applied, and the quantity. If you are an Australian business, ensure your prices are clearly marked as GST-inclusive or exclusive to avoid calculation errors later.Step 3: Choose Your AI Pricing Tool
Depending on your technical skill, choose a path:- SaaS Solutions: Tools like Prisync or Omnia Retail are 'plug-and-play' for e-commerce.
- Custom AI Analysis: Use an LLM (like ChatGPT Data Analyst) to find patterns in your CSV data and suggest manual weekly updates.
- Platform Native AI: Check if your current platform (like Shopify) has built-in dynamic pricing apps in their marketplace.
Step 4: Map Your Competitor URLs
If using a dedicated AI tool, you will need to provide the product page URLs of your competitors. The AI 'scrapes' these pages to monitor price changes. Screenshot Description: You should see a dashboard with a column for "My Product" and a corresponding column for "Competitor URL".Step 5: Establish "Floor" and "Ceiling" Prices
This is the most critical safety step. Tell the AI the absolute minimum (Floor) you are willing to sell for to cover costs and the absolute maximum (Ceiling) to avoid 'price gouging' perceptions.Warning: Never let an AI have unlimited control over your price. Without a floor price, a 'race to the bottom' with a competitor’s bot could result in you selling products at a loss.
Step 6: Set Your Logic Rules
Now, program the 'Brain'. Most AI tools use 'If-This-Then-That' logic. Example:* "If Competitor A raises their price by 10%, raise my price by 5%." Example:* "If stock levels are above 50 units and it’s a Tuesday, discount by 15%."Step 7: Integrate with Your Storefront
Connect your AI tool to your website via API or a dedicated plugin. This allows the AI to push price updates directly to your site without you having to type them in manually. For Brisbane businesses using Square or Clover for in-store sales, ensure your digital and physical prices stay synced.Step 8: Run a 'Shadow' Test
Before going live, run the AI in 'Notification Mode'. The AI will suggest price changes, but won't apply them. Review these for 48 hours to ensure the logic holds up under real market conditions.Step 9: Monitor External Factors (The 'Australian' Context)
AI can be programmed to look at external triggers. For a local service business, this might be weather forecasts from the BOM (Bureau of Meteorology). If you run a landscaping business, your AI might suggest a premium rate during the peak spring growing season or a discount during a predicted week of heavy rain.Step 10: Review and Refine
AI is a 'learn-and-adjust' technology. Once a month, review your conversion rates. If the AI raised prices but your sales volume dropped so significantly that total profit decreased, you need to tighten your 'Ceiling' or adjust your logic rules.---
Pro Tips for Success
- Transparency is Key: If you use dynamic pricing, be prepared to explain it. Australian consumers value fairness. Avoid 'surge pricing' that feels predatory; focus instead on 'early bird' discounts or 'off-peak' specials.
- Watch Your Margins: Always factor in your shipping costs and merchant fees (like Stripe or Afterpay fees) before setting your floor price.
- Segment Your Products: Don't apply dynamic pricing to everything. Keep your 'loss leaders' (items that bring people in the door) at a stable, recognisable price.
Common Mistakes to Avoid
- Ignoring the ACCC: In Australia, the ACCC (Australian Competition and Consumer Commission) has strict rules about misleading pricing. Ensure your 'original' price was a genuine price at which the product was sold for a reasonable period before claiming a 'discount'.
- Setting and Forgetting: Markets change. A new competitor might enter the Brisbane market, or a supplier might raise costs. Review your AI rules quarterly.
Troubleshooting
- The AI isn't updating prices: Check your API connection. Most tokens expire every 90 days and may need a refresh in your website backend.
- Prices are fluctuating too wildly: Increase the 'Smoothing' setting in your AI tool. This prevents the price from changing more than once every 24 hours.
- Competitor data is 'Out of Date': Ensure the AI isn't being blocked by the competitor’s website. You may need to use a tool that offers 'Proxy' rotation.
Next Steps
Now that you have an automated pricing strategy, the next step is to ensure your marketing reflects these changes. You can sync your dynamic prices with your Google Shopping feed to ensure your ads always show the most competitive rate.Need help setting up the technical integration between your AI tools and your website? The team at Local Marketing Group can help you navigate the Australian digital landscape. Contact us today to book a strategy session.