Editor's note:Ryan Lee is the CEO of multivendor marketplace platform Nautical Commerce . The views expressed in this article are solely those of the author.

Over the past few years, the e-commerce industry has grown exponentially, largely driven by the shift toward the marketplace business model. Leading players in the B2C market—such as Amazon, eBay, and Etsy—have fully demonstrated the effectiveness of marketplaces in reaching new customers.

Despite years of resistance to the marketplace model, many B2B companies have now realized the advantages of transitioning from online storefronts selling only their own products to multi-seller vertical marketplaces: offering buyers a diverse selection of relevant products while generating incremental revenue. More and more B2B companies are eager to benefit from this e-commerce expansion, and dozens of new and established players have begun launching their own marketplaces.

Key to driving this shift is that marketplace technology (i.e., websites where multiple suppliers transact) has become more sophisticated and can flexibly support the complexities of B2B transactions. At the same time, the number of vendors offering customized or on-demand marketplaces (such as Nautical Commerce) has increased, making the transition more cost-effective and less time-consuming.

According to a December 2021 report by ResearchandMarkets.com, the global B2B e-commerce market is expected to reach $25.65 trillion by 2028. Such rapid expansion presents countless opportunities for businesses looking to grow within their respective industry verticals.

However, a major challenge facing companies adopting the marketplace model for the first time is dynamic pricing. In particular, building a dynamic pricing system that can respond to market changes and adjust prices accordingly involves considerable complexity.

Understanding dynamic pricing

Anyone who has purchased an airline ticket knows that fares change over time, depending on several factors: how close the departure date is, where the customer buys the ticket, and even who the customer is and the purpose of their trip.

This is essentially what dynamic pricing means: prices fluctuate based on supply, demand, timing, and other variables. E-commerce giants like Amazon were among the first online retailers to adopt and refine this approach.

What makes dynamic pricing so effective—without alienating customers—is its transparency. Customers have become accustomed to the idea that prices fluctuate based on when and how they make a purchase. Other industries that use dynamic pricing include hospitality, entertainment, utilities, and even public transportation. Dynamic pricing has almost become a fact of everyday life.

That said, many B2B suppliers still hesitant to adopt the marketplace model worry that placing their products alongside competitors' will make price competition difficult. However, with dynamic pricing strategies, businesses can adjust prices based on factors such as sales trends, ensuring their products remain competitive. At the same time, they can reach a much larger pool of potential buyers than ever before.

Choosing a pricing strategy

In e-commerce, dynamic pricing is controlled by software through pricing engines (such as Compterra, Omnia, or Qualtrics CoreXM), which adjust prices in real time based on the inputs they receive. While there are various ways to determine these inputs, the three most common approaches are:

  • Cost-plus pricing—prices vary based on the cost of producing the product plus a predetermined profit margin.
  • Competition-based pricing—prices vary based on competitors' pricing to match or undercut them.
  • Value-based pricing—prices vary based on what customers are willing to pay.

Each approach has its pros and cons. Depending on a company's business model, one may be more suitable than another.

Determining the right inputs for a pricing engine requires a certain amount of work. Users must decide which factors matter most in pricing decisions, such as cost of goods, inventory levels, competitor pricing, and seasonal demand.

Implementing dynamic pricing correctly requires in-depth discussions across all key departments of the company, including marketing, sales, finance, supply chain, manufacturing, and more. All these inputs help more accurately determine which factors will influence the dynamic pricing strategy.

There may be some trial and error in figuring out the best approach. However, once the right inputs are identified, pricing engine algorithms can be easily updated to adapt to new realities and changing markets.

Meeting customers where they are

Choosing a dynamic pricing strategy has many advantages. It can significantly increase profit margins on each transaction. Dynamic pricing is especially useful when testing new products and gauging what customers are willing to pay. It also simplifies inventory management, allowing businesses to lower prices on slow-moving stock while raising prices on best-selling items.

Over time, the data collected will make it easier for businesses to fine-tune their dynamic pricing strategies based on customer purchasing habits. Current advances in machine learning (ML) algorithms mean that once parameters are set, the system can operate autonomously without intervention. As the system collects more data, it will learn on its own how to respond to market conditions. This is the beauty of artificial intelligence (AI).

The combination of the B2B marketplace model and dynamic pricing is expected to drive long-term business growth. In the coming years, more B2B companies are expected to embrace both marketplace models and dynamic pricing. Suppliers looking to increase sales and attract new customers will find that going beyond their own branded e-commerce sites and joining a marketplace is exactly what they need to bring them to where their customers are.