Dynamic Pricing Models in E-Commerce: Exploring Machine Learning Techniques to Balance Profitability and Customer Satisfaction

This research investigates the application of Recurrent Neural Networks (RNNs), specifically Long Short-Term Memory (LSTM) networks, paired with gradient-based optimization techniques for dynamic pricing in e-commerce. The primary objective is to develop a pricing model that effectively balances profitability with customer satisfaction by leveraging sequential data, such as time-series and customer behavior patterns. The approach utilizes LSTM’s ability to capture long-term dependencies in sequential data, while optimization methods like Stochastic Gradient Descent (SGD) enhance model convergence and performance. Key findings include the superior predictive accuracy of LSTM-based models over traditional approaches like Linear Regression and Decision Trees, particularly in real-time data updates and price elasticity scenarios. Additionally, the analysis revealed that LSTM models could efficiently adapt pricing strategies in response to market dynamics, significantly improving profitability while maintaining customer satisfaction. This study provides valuable insights into the application of advanced machine learning techniques in e-commerce pricing. The results suggest that LSTM-based dynamic pricing models could optimize revenue generation, offering substantial implications for pricing strategy development in modern retail environments. Future work may explore hybrid models and multi-objective optimization techniques to further refine these models.