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.
Diego Klabjan, chair of the INFORMS University Analytics Program Committee and program director for Northwestern University's Master of Science in Analytics program, gives his advice for figuring out where to get an advanced analytics degree.
What Works: Open Source Analytics Software International Institute for Analytics WebinarOn Wednesday, Sept. 24, join IIA CEO and Co-Founder Jack Phillips, along with featured guest Gary Spakes, as we explore the five modernization stages that analytics hardware/software have experienced. We will discuss the considerations when calculating total cost of ownership of the analytics ecosystem.
2014 VA Interactive Roadshow -- Cary, NCThe 2014 VA Interactive Roadshow will feature SAS® Data Management and SAS® Visual Analytics experts covering topics like prepping data for VA and VA integration with SAS® Office Analytics. This year's events will keep presentations at a minimum and focus on giving attendees hands-on exposure to the latest version of VA.
Essential Practice Skills for Analytics Professionals Drawing on best practices from the field, this INFORMS course helps analytics professionals add value from beginning to end: listening to clients, framing the central problem, scoping a project, defining metrics for success, creating a work plan, assembling data and expert sources, selecting modeling approaches, validating and verifying analytical results, communicating and presenting results to clients, driving organizational change, and assessing impact.
Analytics 2014 The Analytics 2014 Conference is a two-day, educational event for anyone who is serious about analytics. This annual event brings together hundreds of professionals, industry experts and leading researchers in the field of analytics. All Analytics members save $500 on conference fees by using promo code ACAA.
Premier Business Leadership Series 2014 The Premier Business Leadership Series is an exclusive event for senior executives and decision makers that focuses on solving the current issues that affect governments and businesses globally. The Series is a unique learning and networking experience focused on the most innovative leadership strategies and analytic solutions for competing in todayâ€™s global economy.
2014 VA Interactive Roadshow -- BostonThe 2014 VA Interactive Roadshow will feature SAS® Data Management and SAS® Visual Analytics experts covering topics like prepping data for VA and VA integration with SAS® Office Analytics. This year's events will keep presentations at a minimum and focus on giving attendees hands-on exposure to the latest version of VA.
Data Exploration & Visualization Get hands-on training that focuses on the critical steps in the process of analyzing data: accessing and extracting data, cleaning and preparing data, exploring and visualizing data. This INFORMS course will use several of the most popular software tools intensively, and provide an overview of the range of software options.
Foundations of Modern Predictive Analytics In this INFORMS course, learn about modern predictive analytics, the science of discovering and exploiting complex data relationships. This course will give participants hands-on practice in handling real data types, real business problems and practical methods for delivering business-useful results.
2014 VA Interactive Roadshow -- AtlantaThe 2014 VA Interactive Roadshow will feature SAS® Data Management and SAS® Visual Analytics experts covering topics like prepping data for VA and VA integration with SAS® Office Analytics. This year's events will keep presentations at a minimum and focus on giving attendees hands-on exposure to the latest version of VA.
LEADERS FROM THE BUSINESS AND IT COMMUNITIES DUEL OVER CRITICAL TECHNOLOGY ISSUES
The Current Discussion
Visual Analytics: Who Carries the Onus? The Issue: Data visualization is an up-and-coming technology for businesses that want to deliver analytical results in a visual way, enabling analysts the ability to spot patterns more easily and business users to absorb the insight at a glance and better understand what questions to ask of the data. But does it make more sense to train everybody to handle the visualization mandate or bring on visualization expertise? Our experts are divided on the question. The Speakers: Hyoun Park, Principal Analyst, Nucleus Research; Jonathan Schwabish, US Economist & Data Visualizer
The hospitality industry gathers massive amounts of customer data, and mining that data effectively can yield tremendous results in terms of improved CRM, better-targeted marketing spend, and more efficient back-end processes. Roger Ares, vice president of analytics at Hyatt Corp., discusses the ways he and his staff use big data.
Charged with keeping track of travel assets, including employees, iJET International relies on data management best-practices and advanced analytics to keep its clients in the know on current and potential world events affecting travel, Rich Murnane, Director of Enterprise Data Operations & Data Architect, told All Analytics in an interview from the 2014 SAS Global Forum Executive Conference.
Jason Dorsey, chief strategy officer for the Center for Generational Kinetics and keynote speaker at last month's SAS Global Forum 2014, describes how Gen Y professionals are enhancing the makeup of multigenerational analytics organizations.
From analytics talent development to the power of visual analytics, All Analytics found a variety of common themes circulating throughout the exhibition floor and session discussions at the 2014 SAS Global Forum and SAS Global Forum Executive Conference events held last month in Washington, DC.
Talking with All Analytics live from the 2014 SAS Global Forum Executive Conference, Eric Helmer, senior manager of campaign design and execution for T-Mobile, discussed the importance of customer data -- starting internally -- in devising the mobile operator's marketing plans.
The big-data analytics market can be a confusing place. Among the vendors vying for your dollars are traditional database management providers, Hadoop startup services, and IT giants. In this video, All Analytics editors Beth Schultz and Michael Steinhart sit down in a Google+ Hangout on Air with Doug Henschen, executive editor of InformationWeek. Henschen discusses use cases for big-data analytics, purchase considerations, and his recent roundup of the top 16 big-data analytics platforms.
At the National Retail Federation BIG Show last month, All Analytics executive editor Michael Steinhart noted a host of solutions for tracking and analyzing customer activity in retail stores. From Bluetooth beacons to RFID tags to NFC connections to video analytics, retailers must find the right combination of tools to help optimize the shopper experience, streamline operations, and boost revenues.
The days when historical shipment trends and gut feelings were enough to forecast retail demand accurately are long over. SAS chief industry consultant Charles Chase outlines the benefits of pulling real-time sales information from point-of-sale and product scanner systems, then flowing that data into dynamic forecasting tools from SAS.
With today's advanced visual analytics tools, you can stream data into memory for real-time processing, provide users the ability to explore and manipulate the data, and bring your data to life for the business.
Dynamic data visualizations let analysts and business users interact with the data, changing variables or drilling down into data points, and see results in a flash. Advance your use of data visualization with tools that support features like auto-charting, explanatory pop-ups, and mobile sharing.
No doubt your enterprise is amassing loads of data for fact-based decision-making. Hand in hand with all that data comes big computational requirements. Can traditional IT infrastructure handle the increasing number and complexity of your analytical work? Probably not, which is why you need a backend rethink. Big data calls for a high-performance analytics infrastructure, as Fern Halper, a partner at the IT consulting and research firm, Hurwitz & Associates, discusses here.
Redbox's bright-red DVD kiosks are all but ubiquitous these days, located in more than 28,000 spots across the country. Jayson Tipp, Redbox VP of Analytics and CRM, provides an insider's look at how the company has accomplished its phenomenal nine-year growth.
InterContinental Hotels Group (IHG), a seven-brand global hotelier, has woven analytics into the fabric of its operations. David Schmitt, director of performance strategy and planning, shares IHG's analytics story and his lessons learned.