Dynamic pricing is revolutionizing the way businesses operate, allowing them to respond quickly to market trends and consumer demands. This flexible pricing strategy adjusts prices based on various factors, including demand, competition, and even individual customer data. While dynamic pricing helps businesses optimize revenue, it also raises questions about fairness and transparency. In contrast, personalized pricing, which adjusts prices for individual customers based on personal data, remains a controversial practice.
Dynamic pricing leverages technology to adjust prices in real-time. The internet, often assumed to be a neutral platform, actually facilitates price fluctuations based on users' browsing history. A study by Northeastern University in 2014 revealed that several major e-commerce sites, including Home Depot and Walmart, manipulated prices based on browsing history. This practice highlights how sellers use information asymmetry to their advantage, often knowing more about the customer's behavior and willingness to pay than the customer knows about the true value of the product.
Despite its advantages, dynamic pricing is distinct from personalized pricing. Personalized pricing involves charging different customers varying prices for the same product, often using personal data points such as credit ratings. This approach has been met with skepticism due to privacy concerns. In 2014, the US Department of Transportation approved a system enabling airlines and travel companies to collect passenger data for personalized offerings.
Some sectors have embraced dynamic pricing with success. In 2018, Regal, a US cinema chain, announced a trial of dynamic ticket pricing to boost box office revenue. Similarly, Marks & Spencer experimented with electronic pricing to offer cheaper sandwiches during the morning rush hour, encouraging commuters to purchase lunch early. Other retailers like Sainsbury's, Morrisons, and Tesco have trialed electronic pricing systems in select stores. B&Q took it a step further by testing electronic price tags that displayed different prices to different customers based on information from their phones.
Greg Loewen predicts that dynamic pricing will become commonplace in various industries within five years.
“In five years, dynamic pricing will be common practice in the attractions space,” said Greg Loewen.
However, not everyone is convinced of its efficacy for retail.
“In the airline industry, we have more freedom, information and choice on airlines than we’ve ever had before, and that is all dynamic-pricing led. But nobody’s loyal to Ryanair; they’re loyal to the deal. Retail is different,” noted Horgan.
Personalized pricing remains contentious as it involves using personal data to determine pricing.
“If I have five pounds in my pocket and a family of four to feed, I want to know I can generate a recipe that is nutritious for them, and I want an app that can navigate me around the store to find a deal on [the necessary ingredients]. To me, that is personalised retail. But any [bricks and mortar] retailer who charges different prices to different people for the same product is an idiot. They’re only going to lose loyalty,” explained Horgan.
Dynamic pricing is not new; traders have historically adjusted prices based on customers’ perceived willingness to pay. Today’s technology simply enhances this practice by analyzing more data points. Yet, a survey by Retail Systems Research (RSR) indicates that 71% of US consumers are not fond of dynamic pricing. Interestingly, millennials show more acceptance, with 14% expressing enthusiasm for the concept.
MarketHub, an Irish software firm, offers technology that assists retailers in managing inventory and pricing. Two Spar stores in London have utilized this technology to increase revenue and reduce waste.
Simon Read advises consumers on how to navigate dynamic pricing to their advantage.
“The truth is that retailers want to flog their wares at whatever price they can get. If you want to take advantage of dynamic pricing, you’ll need to find out when retailers are desperate to sell. In bricks-and-mortar stores that means shopping at quiet times – in the morning – or waiting until closing time when grocers need to clear their shelves,” Simon Read suggests.
He further advises online shoppers.
“It’s also a good idea to leave things in your shopping basket at most online retailers rather than buying immediately. After a day or two, you will often get an email offering a decent reduction,” added Simon Read.
The potential benefits of dynamic pricing are clear; it allows businesses to maximize profits while potentially offering consumers better deals during low-demand periods.
“Consumers always love it when they can get a great deal, and dynamic pricing isn’t just about raising prices – it often leads to lowering them,” Greg Loewen commented.
However, the ethical implications of personalized pricing continue to be debated.
“You will find people arguing in different directions,” noted Ezrachi.