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.
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