Author Mark Fairlie
The airline industry introduced dynamic pricing to the UK in the 1990s. Airlines started increasing the price of flights as it gets closer to the departure date. As the number of tickets gets fewer, the company can charge higher for the remaining tickets as demand exceeds the supply.
Then, if there are any tickets left just before the flight, it’s extremely common for the airline to cut the price dramatically to make sure they don’t waste any money on empty seats.
This practice is called “dynamic pricing”.
Online stores tweaking prices
The world’s largest online retailer, Amazon, implements dynamic pricing with a wide variety of their products. In fact, the merchants change prices so often that various websites, such as CamelCamelCamel.com, are able to analyse and list hundreds of Amazon price drops every day across the world.
This pricing model allows Amazon to move unsold products whilst offering their customers a good deal just like the airline seats. For example, at time of writing, the site’s UK page lists the week’s “top drops”, currently including a 50-inch Panasonic TV down 10% from £649 to £584.10, and a Michael Kors women’s watch reduced 38% from £289 to £179.
Smart shelves in UK shops
The next big development in dynamic pricing is “smart shelves”. Already common in European supermarkets, these stores have digital price displays that allow for Amazon-esque price fluctuations. This means retailers can offer deals at different times of the day.
Marks and Spencer conducted an experiment in 2016 in a selection of their stores where they used electronic pricing to sell their sandwiches more cheaply during the morning. This was to encourage commuters to buy their lunches earlier in the day to avoid long midday queues. Sainsbury’s, Morrisons and Tesco have also trialled the electronic pricing systems in their stores in recent years.
After stating that two Spar stores in London have succeeded in increasing their revenue and decreasing waste since the smart shelves came in, MarketHub CEO, Roy Horgan stated that he didn’t see dynamic pricing catching on with major retailers.
“Supermarkets have huge, complicated logistics systems.” He continued to say that they “can’t react in real time to what’s going in their stores” the same way an online store can so they would be limited by this pricing system.
Senior innovations and trends analyst at the grocery research firm IGD, Toby Pickard, disagrees. He stated that the smart shelf technology would help retailers to better understand their products and customers.
Pickard said retailers “can closely gauge how prices fluctuating throughout the day may alter shoppers’ purchasing habits, or if on-shelf digital product reviews increase sales.” According to research by IGD, four in ten shoppers said they were interested in being alerted to offers on their phone whilst in-store.
Whilst there have been no announcements so far as to whether or not dynamic pricing will be rolled out across UK supermarkets after the trials, many consumers are already sceptical of the idea.
Dynamic pricing vs. personalised pricing
Personalised pricing is based on the information the retailer can gather using personal data points such as marital status, address, and date of birth.
In 2012, travel site Orbitz was found to be raising prices for customers booking on Apple Mac computers after realising they were prepared to pay up to 30% more for their hotel rooms than other customers.
“Most people assume the internet is a neutral environment like the high street, where the price you see is the same as the one everyone else sees,”
says the director of the University of Oxford Centre for Competition Law and Policy, Ariel Ezrachi. Where personalised pricing can be seen as manipulative, Ezrachi says dynamic pricing is just an effective way for businesses to respond to market trends.