Dynamic pricing has produced more than $1 billion in revenue for automakers over the last decade, according to a report from Reuters this week (June 3). The account of that earnings boost not only reveals how the process works, but raises questions about how the use of pricing software might change the automotive and insurance industries, along with the sale of spare parts.
The story involves such manufacturers as Renault, Jaguar Land Rover and Peugeot — potentially more — along with Accenture, software developer Laurent Boutboul and Securite Reparation Automobile (SRA), a group based in France that is “backed by insurers, measures car parts inflation and publishes this in the hope it will help exert downward pressure on parts inflation."
Boutboul alleges that Accenture used the pricing software in such a way to “damage his reputation because Accenture broke European competition rules,” the report said, which based its story on court filings from France. Boutboul wants approximately $38.6 million in damages.
In a statement to the news agency, Accenture “denied its software was unfair to motorists and said its focus was on increasing clients’ efficiency.”
So-called dynamic pricing is nothing new. At its most basic level, it is simply the extension of supply and demand to digital channels, and through sophisticated software that analyzes traits that might lead to consumers being willing to pay higher prices than they would have, say, the week before. Amazon has earned a reputation for mastering dynamic pricing, and other eCommerce operators — along with organizations that serve the B2B space — are following that example.
In this case, Accenture has told potential clients in the automotive industry that the software in question can identify “which spare parts in a manufacturer’s range customers would be content to pay more for, how much to raise prices by and which prices should not be hiked,” according to Reuters, which has also examined Accenture materials related to that pitch. (All the Reuters materials cover the period from 2009 to 2015.)
Doing a better job on pricing could make it more expensive for drivers and insurance companies to purchase the parts needed for repairs, including after accidents. But the revenue can certainly help the manufacturers, as those parts generally offer much higher margins than sales of new cars, Reuters noted.
“In one presentation to Mitsubishi, (Accenture) suggested the Japanese carmaker lift the price of a silvery model badge (by) 507 percent,” the report said. “Mitsubishi declined to comment on whether it used the software or increased its prices.”
The report also said that “while manufacturers often seek a specific margin on parts, the software attempts to identify those parts for which consumers would be happy to pay above the typical mark-up.”
Also working in favor of car companies is the relative murkiness of the market for spare parts, which Reuters addressed in its June 3 report. “Although the market for new cars is highly transparent and competitive, the market for spare parts is less liquid and transparent, partly because some components can be protected by trademarks or patents, analysts say.”
What happens next is unclear. No further details were immediately available about the case, or how Accenture is now pitching the pricing software and service. But based on how dynamic pricing has been used in retail, significant issues are likely to follow — if not tweaking of certain business models.
Regulators, for instance, might end up taking a closer look at the use of pricing software in this sector. That’s what reportedly happened to Amazon when the Federal Trade Commission last year reportedly started looking into whether the eCommerce company offered misleading information to consumers about pricing discounts.
Advocacy group Consumer Watchdog — after an analysis of 1,000 products on Amazon’s site — alleges that Amazon’s reference prices (placed on about 46 percent of items) are misleadingly high about 61 percent of the time, meaning that Amazon had not sold the item at that highest listed price within the last 90 days. Amazon said those allegations were “deeply flawed.”
Surge pricing — another form of pricing that, to backers, merely follows the longstanding laws of supply and demand — also has attracted the ire of consumers and the attention of lawmakers and other authorities, especially after a story comes about someone paying for an expensive ride after, say, a bad storm, disaster, instance of civic chaos or benign confusion. In Massachusetts, for instance, “state regulators are investigating whether ride-hailing service company Uber illegally jacked up rates with surge pricing in violation of state law during the nor’easter in early March,” according to the Boston Herald.
No matter what happens with the spare parts case, it seems unlikely that pricing techniques involving software and ever more data will not play an increasing role in the automotive and aftermarket industries in the coming years. Various industries are embracing at least some form of dynamic pricing or surge pricing — and, in some cases, they are reinventing it.
Take restaurants. They have long offered “early bird” specials, but recently, Bob Bob Ricard, a swanky joint in London, decided to put a fresh spin on that concept. The restaurant, which offers luxuries like a call button for champagne, decided to lower its prices by 25 percent for off-peak times, such as during Monday lunch, and by 15 percent during mid-peak times, such as during dinner on Tuesdays and Sundays.
There is not much that ties together champagne and spare parts for automobiles, but newer ways of pricing might be something they have in common.