When I weigh the pros and cons of dynamic pricing, I think of my own personal experience -- like the time a couple of years ago when my family and I were planning a cruise vacation.
My brother and I snagged flights online for what we considered a decent price and then shared the link with my nephew. Later that same day, he used the link to book tickets for the same flights but at significantly lower fares. Did my brother and I ditch our flights and try rebooking at the lower fares? No, we chalked it up to the Wild West of dynamic pricing. In this case, those who snoozed, won.
Although many people like to chase down a bargain wherever it might hide, others shop based on immediacy, availability, convenience, and need. If someone is already at a store to pick up paper towels, then they’re most likely going to buy them even if they learn of a 50-cents-off sale set for later that day.
The more “sales” and “bargains” shoppers have exposure to, the more immune they'll get to waiting for them. True, Black Friday holds a certain allure, but everyday can’t be Black Friday or it will lose its luster.
Here is where dynamic pricing can shine, though. Stores can pull back the curtain on certain analytical equations so that shoppers feel like insiders.
For instance, they can run the numbers, determine that local customers are in the middle of a baking frenzy for the holidays, and, on certain days that are traditionally slow, blast a quick email announcing dramatically reduced prices for common ingredients. Not only would the store attract loyal shoppers, but it would also fill the aisles on down days. A true baker would, in fact, wait for such a bargain to stock up on staples such as flour, eggs, milk, chocolate chips, and the like... if the deals were good enough.
The grocer could even make a game of it by offering bigger instant discounts for those who buy enough ingredients for 10 pies. Analytics could easily supply the data on what a “good enough” sale looks like. More importantly, a chain could manage such deals by location based on each store’s quotas, history, and inventory.
Retailers also could use analytics to assess when a certain customer demographic frequents the store. For instance, fathers grabbing milk on their way home from work might be interested in grabbing a half-off pizza if they received a text message offering them that special "dad" pricing. To get the discounted pizza price, the dad shows the cashier the personalized text with the sales offer -- which expires at 7:00 p.m., so he's got to get it now rather than come back after the kids are in bed and he's ready to settle into Monday Night Football.
Dynamic pricing could help big-box retailers entice shoppers to travel to nearby stores for the products they want or to order online rather than checking out availability at a competitor's. If one store in a region sells out of a hot new gaming console, for example, the retailer could automatically lower its price and alert shoppers. Traditionally, this would happen via coupons sent via email.
In the most advanced scenarios, this could take place in real time. Using a smartphone, the shopper scans a barcode for the out-of-stock product, and the retailer instantly delivers a text message with the new price and driving directions to the alternative outlet -- where it'll place the item at customer service for guaranteed availability -- or a link to an online store. The online shopper sees a special page with the lower pricing while regular shoppers entering the e-tail shop through the homepage see original pricing.
While my fellow blogger Noreen Seebacher, in her Point, considers dynamic pricing a cause for anti-anxiety pills, I consider the strategy a unique opportunity to increase the stickiness of a retail customer base. The benefits to consumers outweigh the risks -- panic attacks included.
Join in on this latest Point/Counterpoint by adding your opinions on and experiences with dynamic pricing on the message board below.
I'm sure this post will generate a ton of comments, but... dynamic pricing is a social good!
I work with airlines to help them price. I also work with manufacturers to help them price. The bottom line is this: dynamic pricing allows a company to offer a price that is at or below a customer's willingness to pay for their good. This provides more customers with the opportunity to consume more goods that they need and want, while still offering the manufacturers / providers a profitable enterprise.
As an example, prior to airlines using dynamic pricing, the number of miles flown was relatively small, and flying was only affordable by business travelers or the elite. With the advent of dynamic pricing, airlines now can offer a seat for less to the casual traveler (because they can still charge higher to the business traveler), allowing more people to fly to more places. I think this is a good thing!
Manufacturers have experienced similar benefits. One company I work with offered their main product in two ways - one came with faster delivery, superior customer service, better documentation, and more options, but only if their customers were willing to pay for it. Those that were, did; those that were not willing to pay still received the product, but without the extra things they did not value.
In this way, companies can offer their product to a wide range of customers, maintaining some "economic surplus" for all customers and keeping them in business.
Beth writes the article you cite notes that retailers risk destroying a brand if it becomes "very public that retailers are charging different customers different prices at the same time." Isn't this what the airlines do? -- and, yet, people still fly. I don't think people will like the practice, but I would be surprised to see huge backlash.
Well, as I've said before, the public's capacity to tolerate abuse continues to amaze me. How will the public react to this? Backlash, acceptance, or something unexpected?
Adopting a kind of Wheel of Fortune model to consumer pricing would, it seems to me, change people's shopping and budgeting practices, but in what way, remains to be seen.
My colleague arranges and bankrolls travel for our professional trips, so I don't have much direct personal experience with the new frenzy of dynamic pricing by the airlines. However, it's almost driving my friend beserk. His reaction seems to be to try to find some alternative way to travel, or else to avoid making the trip altogether. Maybe that's a clue to the contours of a more widespread "backlash", but it's too early to tell.
Sandra writes I do agree there is a fine line and the practice has to be clear. I thought of another example: Jewelry. When you go in to a nice jewelry store, they size you up, much like a car salesman would, and decide what their sliding scale of "dealing" will be. So my great price for a ring might not be the same as the next person to walk in the door.
Ah — this is the "If the customer blinks..." routine. I know it well.
You quote a price (for a product or service), and if the customer blinks (indicating he or she is a bit frightened by the price), your next line is something like "Of course, we usually give a 10% discount for cash..." or something along that theme.
Although i disagree with the concept of price differentials overall, i tend to think that it is much better online because then at least you aren't being jusdged based on your appearance or some other unrelated factor. It is likely to be closer to fair and you can hold them to their word as opposed to physical stores where you could end up paying even double for an item.
Lyndon, the article you cite notes that retailers risk destroying a brand if it becomes "very public that retailers are charging different customers different prices at the same time." Isn't this what the airlines do? -- and, yet, people still fly. I don't think people will like the practice, but I would be surprised to see huge backlash.
Ha. Would you believe I literally just ciicked "Buy" on three bridesmaid dresses? (daughters standing up for my sister's wedding). i think the online process was pretty smooth without real-time collaboration, to be honest. The bride texted, "Hey, check out these dresses." All the bridesmaids looked, liked, and ordered (from three different cities). Nobody balked or complained about color or style. Then again, these dresses were so hugely on sale -- reduced from $240 to $24 -- so who could complain?! I'd rather retailers spend their efforts elsewhere.
Something else to throw to everyone: Companies will have to build collaborative apps geared toward the need for real-time browsing among multiple parties vs. click and send and look at later. For instance, bridesmaids online at the same time should all be able to look at a few dresses and hit buy.
@Lyndon, thanks for sharing this. I do agree there is a fine line and the practice has to be clear. I thought of another example: Jewelry. When you go in to a nice jewelry store, they size you up, much like a car salesman would, and decide what their sliding scale of "dealing" will be. So my great price for a ring might not be the same as the next person to walk in the door.
I have had the same experience with Target, Children's place and The Gap; they all have similar policies so the consumer needs to shop online before going in store. I have seen much wider price differentials for the same product online vs. in store for the same vendor. As a consumer it irritates me but I have also made it the stores responsibility to honor the difference either through a return or call to customer service. I personally think its poor proctice and creates channel conflict unnecessarily, it also create consumer distrust.
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