In the past, dynamic pricing was common in markets. Now, in the digital age, it’s becoming popular again. This pricing strategy involves changing prices based on things like demand, time, and how customers act. It started in the airline and ride-sharing industries and is now used in many other areas, such as fast food and shopping.
Businesses are looking into dynamic pricing more and more to improve their operations and make more money as technology changes and customer habits change. But this trend brings up important questions about how people see things, what is fair, and how to balance making as much money as possible with keeping customers’ trust. Here’s how to use dynamic pricing in a way that fits with the goals and values of your business and addresses customer worries.
From old shops to digital shelves, dynamic pricing
Before there were standard prices and price tags on shelves, people usually negotiated and bartered to get the best deal on a product. People in Rome went to auctions to buy and sell things as early as 500 B.C. Since then, the Industrial Revolution and the rise of department stores have made it possible for prices to be uniform, which has made shopping easier for both customers and stores. Customers liked how easy it was to compare prices, and stores liked how quickly they could complete deals without having to negotiate for a long time.
In the category of “old is new again,” dynamic pricing is becoming more popular again. This is because of changes in technology, customer behavior, and the way the market works. With the rise of big data, advanced analytics, AI, machine learning, and online shopping, it’s now easier to change prices on the fly based on changing circumstances.
Many people are familiar with dynamic pricing, which was made popular by planes and ride-sharing services, but consumers still have mixed feelings about it. On the plus side, customers like that changeable pricing gives them the chance to get better deals by getting discounts and lower prices during slow or off-peak times. Also, the fact that dynamic pricing is personalized can make people happier who are getting customized deals.
On the other hand, a lot of people think dynamic pricing is unfair, especially if they think they are paying more than other people for the same goods. Concerns about price changes and price gouging during situations or times of high demand are made worse by problems with transparency.
What should a brand do? Businesses that use dynamic pricing need to carefully balance how customers feel with their goal of making more money and making sure they are treated fairly so that customers stay loyal and trust them.
The past, the present, and the future of dynamic price
The past
Airlines have changed prices for a long time based on seasonality, changes in demand, and other factors. This has taught customers to check prices and change how they buy things to get the best deal.
Similarly, ride-sharing companies change their prices based on demand, traffic, and the number of drivers who are available. When comparing Uber surge pricing to Lyft during rush hours, people usually choose the cheaper choice or find another way to get to their destination.
The present
During a results call in the first quarter of 2024, Wendy’s announced dynamic pricing. At first, this made customers worried about price increases during busy times. After a lot of back and forth, Wendy’s made it clear that they plan to lower prices when demand is low instead of raising prices when demand is high. Dynamic pricing from planes and ride-sharing has spread to fast food. This shows how digital pricing is becoming more popular and how important it is to calm people’s fears.
The future
Now we’re in the second quarter of 2024, and digital shelves looks like it will completely change how dynamic pricing works in stores. Digital shelving should cut down on the time and money needed to change prices by hand and solve other practical problems. People are getting ready for the change, thanks in part to Walmart’s plan to use digital shelf labels in 2,300 shops by 2026.
Like with Wendy’s, some customers are complaining about the higher prices, but this hasn’t stopped Walmart’s plans yet. Walmart’s goal with dynamic prices is to improve the customer experience while also making operations more efficient. We’ll have to wait and see if Walmart can make this work. What should a brand do next if it wants to use changeable pricing?
The best ways to use dynamic prices
In a perfect world, customers wouldn’t be turned off by dynamic pricing. These things brands can do to find the right balance:
- Be clear about how you use dynamic pricing. For example, if a brand says it won’t use surge pricing, it needs to make sure it follows through with proper tracking.
- Pick the right dynamic price strategy: Choose a price strategy that changes based on what the business wants to achieve and what the customers want. Here are some strategies:
- Time-based pricing means changing prices based on certain times, like lowering prices during the summer season.
- Peak pricing means raising prices during times of great demand while still staying within reasonable limits.
- Segmented pricing means charging different groups of customers different prices, such as giving discounts to regular customers or people who buy from you often.
- Penetration pricing means setting a cheap price at first to get people to buy, then raising it gradually.
- Competitor-based pricing means changing prices based on what other companies are charging.
- Behavior-based pricing means changing prices based on how each customer acts.
- Bundle pricing means giving discounts on groups of goods or services.
- Legal and moral standards must be followed: Make sure that the dynamic pricing plan follows all legal rules and moral standards. For example, a pharmacy that uses dynamic pricing has to follow rules about how much to charge for certain medicines. Walmart’s moral mission is to make people’s lives better by saving them money, bringing people together, and giving them chances. Using digital shelf labels to raise prices would go against their brand values.
- Set the limits of your prices: Set base and maximum prices to make sure you can make money and keep customers trusting you. As an example, a high-end brand might set a minimum price to protect the worth of the brand while using dynamic pricing to give loyal customers special deals. Avoid situations like the Taylor Swift ticket pricing mess at Ticketmaster, where prices went from $400 to $22,000.
Consumer markets like airlines, ride-sharing, fast food, and shopping are all being changed by dynamic pricing. Businesses must find a way to make money and keep customers happy as this trend grows. One way to do this is to be honest about prices and follow fair business practices.
When dynamic pricing methods are used carefully, they can help businesses become more efficient and competitive while also keeping customers loyal. In the future, these tactics will be used by more companies. Companies that put an emphasis on honesty and doing the right thing will be rewarded with long-term customer trust and market success.
