29 Mar 2026

From Pricing Guesswork to Profit Optimization: Applying Price Elasticity in Dynamics 365

Author: Roman Abilkhatov, D365 Finance Solution Architect

Pricing is one of the most powerful — and most underutilized — levers in any business.

A small change in price can have a disproportionate impact on profit. Yet in many organizations, pricing decisions are still based on intuition, static markups, or occasional spreadsheet analysis.

This is where price elasticity becomes highly relevant — and where modern tools can turn theory into immediate business value.

What is price elasticity — and why does it matter?

Price elasticity measures how sensitive demand is to changes in price.

In practical terms:

If you increase your price by 1%, how much does your sales volume decrease?

1. If demand drops sharply, your product is price sensitive (elastic)
2. If demand barely changes, your product is less sensitive (inelastic)

This single metric provides powerful insight:

1. Are you underpricing your products?
2. Are you sacrificing margin unnecessarily?
3. Could a price increase actually improve profit?
4. Can we reduce inventory levels and free up working capital?

For many companies, these questions remain unanswered — not because the data doesn’t exist, but because it is not operationalized.

Pricing Intelligence, b

The gap: from insight to execution

Most ERP systems, including Dynamics 365, contain all the required data:

1. Historical sales prices
2. Quantities sold
3. Revenue trends over time

However, turning this data into actionable pricing decisions is where things typically break down.

The common pattern looks like this:

1. Export data to Excel
2. Perform manual analysis
3. Decide on price changes
4. Update ERP (often manually)

This process is slow, inconsistent, and rarely repeated frequently enough to truly optimize pricing.

Moving to an execution-driven approach

What if pricing analysis was not a one-off exercise, but a continuous and automated capability embedded directly in your ERP?

This is the idea behind the Pricing Agent that Dr Dynamics developed for Dynamics 365.

Instead of separating analysis from execution, the agent connects both.

What the Pricing Agent does

The agent operates directly on your transactional data and performs four key steps:

1. Calculates price elasticity per item Using historical sales data, it estimates how demand responds to price changes.
2. Simulates pricing scenarios It tests a range of price changes (−20% to +20%) to understand impact on:
   - Volume
   - Revenue
   - Profit
3. Identifies the optimal price that maximizes profit — not just revenue.
4. Executes the decision (optional) - The recommended price can be pushed directly back into Dynamics 365.

Revenue

This removes the gap between insight and action.

Note: the accuracy of the elasticity model depends on the quality and volume of historical transactional data in your system. Items with limited or irregular sales history may warrant manual review before acting on any recommendations.

What this looks like in practice

The Pricing Agent can easily be invoked from Teams or Copilot Chat.

The real value of the Pricing Agent is not just in calculating elasticity — it is in translating it into clear, actionable outcomes.

For a single item, the agent provides a clear decision framework:

1. A precise pricing recommendation Not just “increase price”, but a clear target supported by data
2. Quantified revenue and profit impact Showing before vs after performance, making the financial benefit immediately visible
3. Scenario-based insight Understanding how different price points affect volume, revenue, and profit
4. Defined profit boundaries Clear indication of price ranges where profitability starts to decline

But it goes beyond pricing alone.

Extending into operational impact

Because pricing directly influences demand, the agent also translates pricing decisions into operational outcomes:

1. Reduced inventory levels Lower expected volume can significantly reduce stock, handling costs and storage needs
2. Working capital optimization Less inventory tied up means capital is freed and can be redeployed
3. Purchasing guidance Recommended monthly purchasing quantities aligned with expected demand
4. Inventory policy alignment Suggested min/max levels and inventory value ranges based on optimized pricing

This is where the approach becomes particularly powerful.

Pricing is no longer isolated — it becomes directly connected to supply chain and financial outcomes.

Why this matters now

Dynamics 365 is becoming more open and extensible, allowing intelligent automation to sit directly on top of core business processes.

This creates an opportunity to rethink pricing — not as a periodic exercise, but as a continuous optimization process.

Immediate business impact

Unlike many analytical initiatives, pricing optimization delivers fast and measurable results.

A well-calibrated pricing strategy can:

1. Increase profit without increasing sales volume
2. Reduce unnecessary discounting
3. Align pricing more closely with actual demand behavior

Even small percentage improvements can translate into significant financial gains.

From theory to practice

Price elasticity has been a well-known concept in economics for well over a century.

What has changed is the ability to apply it directly, continuously, and at scale inside operational systems.

This is where tools like the Pricing Agent become valuable:

1. No separate analytical workflow
2. No dependency on spreadsheets
3. Direct integration with your ERP
4. Easily accessible through Teams or Copilot Chat

It is not about adding more reporting — it is about enabling execution.

Final thought

Many organizations invest heavily in cost optimization, process efficiency, and automation.

Pricing, however, often remains one of the last manual frontiers.

Yet it is one of the fastest ways to improve profitability.

The question is no longer whether the data exists — but whether you are using it to actively optimize your prices.

Ready to optimize your pricing?

If you'd like to see how the Pricing Agent works with your own Dynamics 365 data, we'd be happy to walk you through it.

Get in touch at sales@drdynamics.co.uk and we'll set up a tailored demo for your business.