Variable and Dynamic Pricing; great for consumers, yes and no.

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Do you like eating out? Would you be happy to go out for dinner on a week night rather than at the weekend if it saved you some money?  Many restaurants and hotels have to turn away potential patrons on Friday and Saturday nights but are quiet early in the week.  To encourage more patrons early in the week they offer cheaper meals on the quiet days.  There are some great websites around to promote weekday deals such as eatdrinkcheap.com.au.  Variable pricing can be a win-win for business and consumers alike.

Variable and dynamic pricing can be used by business to fill seats, maximise profits and stay competitive. Variable pricing refers to set pricing differences for variations in a good or service, for example different seats or different days of the week, whereas dynamic pricing describes fluid changes to prices flowing from fluctuation in supply and demand, competitors prices and consumer specific data.

U.S. Major League baseball has been using dynamic pricing to maximise their ticket sales for a few years now. The ticket prices are varied using a computer algorithm which uses factors such as the popularity of the teams playing, the day of the week, the weather and remaining tickets left.  Prices can keep changing up to 24 hours before the game.  The more popular the game the higher the ticket price.  For less popular games the ticket price drops encouraging attendance.  Fans can save money by buying tickets well in advance and clubs benefit from increased attendance.  Sales of season passes also increased when the dynamic pricing was introduced mainly from the segment of fans who were sensitive to ticket cost uncertainty wanting to lock in their prices.  Could this be the future for ticket pricing for sporting and other events?

Dynamic pricing can help retailers remain competitive and competition can provide better deals for consumers.  New technologies are making it easier for businesses of any size to take advantage of dynamic pricing tools now commercially available to automatically monitor competitor’s prices and adjust their own accordingly.

Amazon claims a large part of its success is its reputation as a low cost retailer.  The short video below is insightful in how their systems work using sophisticated web base crawlers to monitor prices in the market and then automatically adjust their own prices to ensure they are the lowest.

Of course prices can move in two directions, as well as Amazon moving their prices down to be the lowest they also move their prices up when the market moves up and there is a gap between Amazon’s price and the next lowest.   This can result in some bad press. Amazon was recently accused of exploitative pricing when David Bowie’s album prices rose immediately after his death was announced. This did look exploitative but the price increase had more to do with Amazon’s automated pricing systems than a deliberate act.

So is dynamic pricing just a way to allocate resources efficiently and increase competitive advantage or does it have a darker side?  What about discriminatory pricing?  Online retailers can take advantage and can charge each consumer a different price depending what their online behaviour reveals about their purchasing behaviour.  Just as we research our intended purchases retailers can research our individual behaviour.  The video below explains further.

Maybe the next time you want to make an online purchase and you aren’t in a hurry you could put your intended purchase in your online shopping basket then leave the site without finalising the purchase.  You may find that the retailer comes back to you with a lower price.

References:

Chalmers, G 2016, Top Harrogate restaurant to charge different prices on different days, Harrogate Advertiser, Accessed 1 May 2016, <http://www.harrogateadvertiser.co.uk/news/top-harrogate-restaurant-to-charge-different-prices-on-different-days-1-7846060>

Dynamic and Variable Pricing – Quick Draw with Jim McCarthy, Goldstar CEO, YouTube, Jim McCarthy, 14 October 2014, retrieved 1 May 2016, <https://www.youtube.com/watch?v=h67sxXVi6oQ&gt;

Insights on Amazon’s Dynamic Pricing, YouTube, Mabel Mclean, 26 November 2014, Accessed 1 May 2016, <https://www.youtube.com/watch?v=0a3eBQB1uUA&index=37&list=WL>

KNBC – Dynamic Pricing In Online Shopping, YouTube, NBC4 News, 21 December 2014, Accessed 1 May 2016, <https://www.youtube.com/watch?v=UKwOzEy394k&index=38&list=WL>

WCPO Digital Staff (2016), What is ‘dynamic pricing’ and how does it work?, I9WCPO Cincinnati,26 March 2013, Accessed 1 May 2016, <https://www.youtube.com/watch?v=h67sxXVi6oQ>

Wharton University of Pennsylvania 2016, The Promise — and Perils — of Dynamic Pricing, retrieved 1 May 2016, <http://knowledge.wharton.upenn.edu/article/the-promise-and-perils-of-dynamic-pricing&gt;

 

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