Companies love dynamic pricing... customers not so much

In recent years an increasing number of companies have flirted with, dated, and even fully married themselves to the concept of “dynamic pricing”.

The prices they are a-changin'

The idea is hardly new. Indeed, technically all prices are dynamic because companies eventually update them (except the Costco hot dog, of course). But here we’re referring to when prices fluctuate quickly or in real-time to changes in demand — a concept that’s increasingly beloved by company execs.

Uber is one of the most famous advocates of the system. Try getting a ride on a busy Saturday night and you’ve likely experienced “surge pricing” on the ride-hailing app, which automatically adjusts the fare depending on how many people want a cab. Airlines and hotels have also been using dynamic pricing for years to carefully extract every dollar they can from their limited inventory of seats and rooms. Even Coca-Cola has toyed with the idea, with its CEO suggesting a temperature-sensitive vending machine that would raise prices when it was hot back in the early 2000s.

Wendy’s made headlines earlier this year when it touted plans to experiment with dynamic menu pricing... a suggestion that received a wave of backlash. Walmart announced in June that it would be rolling out digital labels for its shelves, which would allow it to change prices more quickly, creating similar concerns about the potential for real-time price changes, although a Walmart spokesperson told Fast Company that the new program would not be used for dynamic pricing.

But, most recently, Ticketmaster has again been in the firing line for its dynamic pricing mechanism in the UK, after Oasis reunion tour tickets shot up during a day of heavy demand, prompting a government review.

Surge protectors

Given that the ability to change prices is so fundamental to how our economy functions, banning the practice feels impossible without getting into a very boring argument about “how” dynamic prices are allowed to be.

However, companies should take heed of how not to do dynamic pricing. Lesson one: don’t change prices after the fact. People can live with paying more, but, if you quote them ~$190 and then by the time they reach the checkout the price is $460+, you will have a lot of people looking, and shouting, back in anger.