Comment: it’s surely time to investigate dynamic pricing
As a result of the recent dubious Competition and Markets Authority (CMA) investigation into suspected profiteering by the major supermarkets through high fuel prices, Asda now publishes online each morning the latest fuel prices and the previous day’s closing price for each of its forecourts.
The Leeds-based grocer is also currently developing a system that will show real-time fuel prices across its estate as they change through the day at each of its filling station. This will reflect the dynamic pricing nature of the fuel market and allow drivers to obtain the best deals at different times of day and at various locations.
Maybe we should not call it dynamic pricing though because retailers seem to run a mile whenever it is mentioned, such is the great sensitivity from consumers around things like surge pricing under certain circumstances or when supplies of a product or service run short.
This is highlighted by research undertaken across visitor attractions and the industry’s widespread adoption of high-and-low-season pricing strategies for school holidays and other peak periods. A survey by Convious, Baker Richards found that only around 20% of people believe it acceptable to increase prices at busier times whereas a rather larger 60% find it acceptable for prices to be lower at less busy times. The obvious conclusion here is that many people seem to like the idea of dynamic pricing but only when it works in their favour and they can bag a lower price.
No surprise there then. So clearly care has to be taken. An example of changing prices with arguably little intelligence came from Stonegate Group that suddenly increased the prices of pints of beer at 690 of its pubs for the England games during last year’s World Cup. This went down badly with many fans – especially when they were also asked to drink out of plastic glasses (is there a worse crime). More care should have been taken with communicating this initiative and maybe some promo element also included.
Such mishaps should surely not mean that retailers completely ignore the possibilities that dynamic pricing undoubtedly presents. Let’s consider that it has become a fundamental part of a variety of consumer-facing industries. The most obvious are hotels and flights where prices change constantly but it also occurs in many other areas including car hire, Uber and other taxi services, theatres, cinemas, sporting events and myriad other areas. Maybe sometimes we are not even aware it is happening behind the scenes when we buy certain goods and services.
This month cinema chain Vue announced it was accelerating the roll-out of flexible pricing across its outlets as it found a demand for it in the market. It stated: “Price optimisation enables the group to offer agile pricing strategies to customers to optimise admissions and profit.” What’s not to like?
One benefit that such an organisation has over retailers is that its pricing is typically rather opaque and only visible to individual customers at the time of the transaction. This is certainly less of an issue for retailers running second-hand marketplaces where there are typically no directly comparable products and their prices.
The growth in resale and used goods will no doubt provide an entry point for retailers to potentially play with dynamic pricing but for now the reality for many merchants with physical stores is that they have the messy complication of dealing with labels. These are visible to all shoppers and also involve the complication of having to physically change them. This is something that would, of course, be overcome with electronic shelf-edge labels but that’s another story.
Where things are easier to manage is online and this is where there is surely an opening for retailers to use dynamic pricing based on metrics like stock levels, especially around products that are perishable or conversely those in high demand. There is also the opportunity for retailers to introduce online solutions like e-commerce chatbot Nibble that automates the process of engaging shoppers in a negotiation over price. This route into dynamic pricing – with pre-set pricing parameters – can drive significant uplifts in conversion.
Yes, there are challenges with adopting dynamic pricing but it has become an integral part of so many industries that surely retailers, armed with today’s clever technologies, should at least be investigating this interesting area.
