Beware Dynamic Pricing

The current Time magazine includes an article noting the rise of dynamic pricing—a retailer changing prices based upon anticipated demand from a customer or group of customers. Also called “adaptive pricing,” the technique has been used openly by airlines for decades. The people sitting on either side of you on the plane may very well have paid substantially less or more than you because of their times of purchase, for instance.
     The Time article reports the expansion of dynamic pricing practices to St. Louis Cardinals baseball game tickets, golf course tee times, and other retailers with perishable inventory. Once the flight leaves, the game is underway, or the tee time has passed, the value of what’s up for sale goes poof. With merchandise that’s not perishable, the burgeoning use of online price comparisons allows both you and the consumer to negotiate without even talking to each other.
     Yet, beware dynamic pricing. Consumer researchers at University of St. Thomas and University of California-Berkeley analyzed a pricing policy used by Amazon in year 2000, in which some shoppers were offered a discount of 30% on a set of DVDs, while others were offered a discount of 40%. When customers discovered in online exchanges what was going on, there was not much evidence of good will toward Amazon.
     With all the data you’re able to collect on customers, you’ve the ability to customize pricing to the individual. Unlike a large retail business, the small store operation can acknowledge knowing the customer’s preferences well without inducing in the shopper a creepy feeling of privacy having been violated. To reduce any discomfort further, offer a package to fit the shopper’s predilections rather than using dynamic pricing on individual items. This makes it less likely your various shoppers will directly compare what they paid for identical merchandise or services.
     If using demographic information to set a price—rather than the time of purchase or set of interests—avoid any appearances of discrimination. The St. Thomas/UCB researchers presented some study participants with a situation where a dry cleaner gives a discount when cleaning a man’s shirt that is not given when cleaning a woman’s blouse. About 70% of the study participants said this was unfair. Only if the cost differential was called a surcharge—not a discount—and a reason was given—“more pleats, ruffles, or sensitive fabric”—did most respondents consider it to be fair.

Click below for more: 
Feather Pricing Changes with Precision 
Earn Goodwill in Giving Discounts 
Respect Customers with Fixed Pricing