Dynamic pricing in retail: Unveiling the price swing debate.
In the dynamic world of retail, two seasoned experts, Glynn Davis and Matthew Valentine, go head-to-head each month. With sharply contrasting opinions, they dissect the hottest retail topics.
This month, they spar over the controversial concept of dynamic prices. Brace yourself for a riveting exploration of a strategy that’s reshaping the retail landscape.
Get ready for Glynn Davis and Matthew Valentine’s clash of perspectives in this edition of “Retail Face-Off.”
Matthew Valentine: “Dynamic pricing is the opposite of a customer-first policy.”
Dynamic pricing is in the news again. The strategy, familiar to those who have used ride hailing apps such as Uber, can see prices go up and down depending on the most basic tenet of business: supply and demand.
Now, dynamic pricing is set to spread to more traditional industries. Stonegate, which runs pub chains including Slug & Lettuce and Yates’s, is to try dynamic pricing at 800 of its venues. Prices could go up or down, by around 20p per pint of beer, depending on how busy the pubs are. If the move works for Stonegate, retailers will surely be the next to try out the concept.
They would be wrong to do so. Just because something can be done does not mean it should be done, and to introduce dynamic pricing in pubs and shops would be the start of a very slippery slope.
Retail and service brands have spent the last decade or more in search of a customer-facing outlook. Everything they do, say the companies, is done to serve the customer. Their marketing directors are consumer champions, the voice of the consumer within the company; these companies set themselves apart from their rivals by the standard of their customer service, their relentless focus on customer needs, and their tireless efforts to put the customer first.
Dynamic pricing is the polar opposite of that stance.
Dynamic pricing takes the problems of the company and parks them, all too visibly, on the doorstep of the customer. It sends the message that, if a pub is busy and service times are compromised, customers will not just have to wait longer but also to pay more.
‘We are facing unprecedented costs,’ moan the companies. ‘We need to use dynamic pricing to recognise this.’
Well, that’s business. Work out your costs, deal with your suppliers, renegotiate your property overheads or lobby the government for reduced rates. It is not your customer’s problem if you can’t handle your cost base.
Many supporters of the concept point to the budget airline sector as an example of dynamic pricing in action. But success is a relative term.
Yes, budget airlines will raise and lower prices depending on demand, and on how many people are booking on particular routes. But, on the whole, customers hate budget airlines. Comedians base whole routines on them. Customers tolerate the airlines, because they are a necessary evil to getting a cheap holiday and there are very limited alternatives. When they go for a drink on a Saturday evening, there are alternatives.
Would you choose a venue where you knew the cost of items, or one where the landlord puts them up and down as they choose? Happy hour or unhappy hour?
Customers have seen their finances stretched and their wellbeing battered over the last year. The last thing they want to do is become part of an algorithm designed to improve the finances of their local pub or shop.
Glynn Davis: “There are myriad examples of how dynamic pricing could be introduced into retail businesses.”
When major UK-based pub group Stonegate introduced dynamic pricing to many of its outlets recently there was a national media outcry at the sheer cheek of increasing prices by 20p a pint at peak times. It was dubbed the ‘unhappy hour’ as it was deemed to be the polar opposite of the traditional cheap-priced happy hour that everybody enjoys.
The reality is that dynamic pricing, or surge pricing as many people choose to negatively call it, is unfortunately regarded as something of a toxic term in the world of retail and hospitality. It is only ever associated with prices rising. Certainly this is the only time the media chooses to publicise it.
This is a shame because it could be so beneficial to the retail industry and customers alike. We only have to look at the widespread use of dynamic pricing by the likes of the airline and hotel industries to see how beneficial it can be in managing available seats and beds. Retailers could benefit from using it to better manage their inventory – whether that be products on shelves or services – that ensures they can optimise the pricing of the product they have available.
This does not mean solely raising prices when stocks run low but also reducing prices when there is an abundance of stock. There is also an opportunity for retailers to efficiently reduce the prices of perishable goods until they clear their stocks and eradicate the serious issue of waste that is both economically and environmentally damaging.
As an example, this tactic is successfully used by Pesca restaurant in Amsterdam, which continuously decreases the price of its fish to ensure it sells out by the close of business. The changing supply of fish varies depending on daily delivery, seasonal availability, and weather conditions. This all feeds into its decision-making on pricing.
This use of various data points to determine pricing is surely a sensible approach. Halfords uses this for its dynamic pricing activity involving the call out service in offers in its motor division. There is no fixed price for an engineer to visit a customer, it is based on various factors such as the distance the vans are away from the customer, the time of day, and the availability of the relevant tools/products. It prices the call outs at a level that ensures it can achieve a consistent level of profitability. It is not about ripping off the customer but simply about enabling the business to continue to offer the service at an economically feasible price level.
There are myriad examples of how dynamic pricing could be introduced into retail businesses and they are not all about rising prices. Stonegate arguably suffered such vocal pushback to its actions because it had not communicated its actions clearly enough. It merely focused on the stick of rising prices when it should have also highlighted the carrot of reduced prices at quieter times when it wants to drive more people into its pubs.
Retailers should be learning from these initiatives and look to use dynamic pricing alongside an educational piece that highlights to consumers the upsides of dynamic pricing because there are massive opportunities to be had for both retailers and shoppers. Hopefully this will overcome the obstacle of the negative narrative that pervades right now.