Will Dynamic Pricing Become Normal For More Purchases?

There was a time when technology did not set the agenda for everything around us. Now politics, shopping, sport, and travel are all influenced by the technology used to deliver services and sometimes the strangest technology stories can rise to the top of the news agenda.

Take dynamic pricing as one recent example.

Most of us are used to some products or services being charged at variable prices. A hotel room is not always the same price, just like an air ticket. Algorithms work in the background to determine the right price to set for a product so that when it is in demand the price increases and if demand drops then it becomes cheaper.

There are many examples of how this concept has moved from the travel industry into other areas of daily life. Booking a taxi is often more expensive on Saturday night compared to Monday afternoon and Amazon is constantly repricing the products they sell – on average products change price 144 times a day on Amazon.

McKinsey has published advice on how retailers can use dynamic pricing to constantly adjust their prices so sales can be encouraged during quiet times and more can be earned during peak periods.

But dynamic pricing is also a good example of a technology solution that can be misused so it creates a negative reaction.

When the British rock band Oasis recently announced that they plan to reunite after 15 years there was huge interest from fans in the tickets for the shows they announced. Ticketmaster was managing the ticket sales and although they had announced the prices for different types of ticket, they did not announce publicly that dynamic pricing would change these standard prices.

A standard £135 ticket might be this price if the customer manages to buy it early, but once the show starts getting full these ticket prices were going up to 2x or 3x the original price. Some fans of the band reported that they bought just two tickets for a show and had to spend around £1,000.

The complaint with this use of dynamic pricing is that it takes advantage of the customer’s eagerness to see the show. When you have invested seven or eight hours waiting in a virtual line just for the chance to buy a ticket and you then find it is much more expensive than expected, some customers will walk away and not purchase it. Others will look at all the time they have invested and make the purchase anyway.

Some have suggested that this is a bit like a retailer showing you ‘expected prices’ inside a shop and only telling you the real price once you have put everything in a trolley, taken it to the checkout, and scanned the items. The UK government has announced an investigation into this type of dynamic pricing system as there is a feeling that consumers are being exploited.

What is important to note is that companies are actively trying to use technology and analytic solutions to maximize their interactions with customers. Some commentators feel that it is unfair to charge variable prices for services, but others have noted that there are many areas of life where it has become common. Nobody would now expect to find a fixed price air ticket from London to New York.

A bar in San Francisco once tried variable prices for drinks, although this doesn’t seem to have taken off as an idea. However, visitors to bars will know that it is common to see cheaper drinks during the early evening ‘happy hour’ and then the regular prices returning later. Could it become common for food and drink to be priced in this way?

I expect that some retailers will try this, adapting the Amazon model across more types of retail, but if it creates the opportunity for some people to benefit and others to miss out on deals, it will be unpopular. Sometimes this type of pricing can be used to deliberately create the effect of a supply shortage – forcing customers to pay anything.

The balance between using technology for business efficiency and ensuring a positive customer experience is delicate. Dynamic pricing can be a powerful tool, but when misused, it risks alienating the very people businesses rely on.

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