Consumer Insights

Dynamic Pricing Becomes The Rule, Not The Exception

There’s no denying that in terms of cutting-edge innovations, online retailers are usually quicker on the uptake than their in-store counterparts. However, while eCommerce-centric businesses may have pulled ahead on fronts like omnichannel and dynamic pricing, more and more brick-and-mortar merchants are stealing pages from online retail’s book – no matter how disruptive the changes might be for consumers.

The Wall Street Journal has a rundown of just how many businesses in non-traditional retail industries are embracing dynamic pricing strategies based on in-store customer traffic. Some brands that are already familiar with operating in an e-retail space like Kohl’s have employed 1,200 electronic displays on shelves to allow for remote adjustments and targeted sales. Still, even non-traditional retail environments – like the zoo or even highway tollbooths – aren’t willing to miss out on the benefits that online retail strategies can bring to the real world of retail.

According to Peter Fader, co-director of the Wharton Customer Analytics Initiative at the University of Pennsylvania, retail as a whole is approaching a point of no return for big data and the Pandora’s box of consequences attached to it.

“This is not a passing fad,” Fader told The WSJ. “It’s going to become imperative for the brick-and-mortar players to figure out how to do this.”

Fader explained how the concept has gained traction with professional sports teams in particular, as the non-fixed price of tickets can be adjusted based on a dozen factors, including weather, a string of recent success or that of an opponent and even real-time remaining seating updates. When Major League Baseball began this process in 2010, Fader told The WSJ that consumers rose up in resistance to the idea.

“Now pretty much every one of them is doing it routinely, and doing it with a remarkable lack of backlash,” Fader said. “The first time, it’s ‘That ain’t right.’ The second time, it’s all right.”

However, it’s not yet clear whether consumers are ready to pay double for a movie ticket on opening night or to move a vacation to off-peak seasons just to avoid premium rates. While Amazon’s sheer volume of sales and inventory alongside near-constant changes in prices make it difficult to observe the positive or negatives changes in a single item’s price over time, businesses that only sell a handful of products or services can’t hide the price fluctuations from their shoppers as easily – just as they can’t help their customers from feeling that they’re at the mercy of brands trying to make a quick buck off high demand.

“It’s a drag as a consumer,” said Andrew Sullivan, a products manager based in California who recently paid $34 for in-flight Wi-Fi under provider Gogo Inc., which has a $8-$40 sliding pricing scale. “You’re not getting any additional value when you’re paying twice as much for the same commodity.”

It’s hard to see customer backlash pushing back the creep of dynamic pricing into brick-and-mortar retail, especially considering many shoppers are all too happy to pay for micro-adjusted items online every single day. However, there is a divide between how data-centric retailers like Amazon can conduct adjustments and how a run-of-the-mill ski resort does the same for lift tickets – while scale allows the former to change prices by pennies and still create revenue, it’s the latter whose smaller size means more drastic peaks and valleys are necessary to capitalize on rushes of traffic.

Ironically, it’s those same dramatic, visible peaks and valleys that might tick off enough customers from the process in the first place. And if customers reject what retailers are embracing as the future of brick-and-mortar pricing, it could end up being a battle where both sides have more to lose than they have to gain.

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