How do you avoid consumer backlash from using dynamic or surge pricing?

To mitigate consumer backlash from dynamic or surge pricing, transparency is key. Clearly communicate the pricing model, factors influencing changes, and provide notifications when prices are expected to increase. Implementing a cap on price surges during peak times can also help maintain customer trust and satisfaction. Offering discounts, loyalty programs, or alternative options during high-demand periods can further soften the impact on consumers. Regularly seek feedback to understand concerns and make adjustments accordingly.

Decrease the visibility. Learn a lesson from Uber. Remember when uber used to show you all sorts of flags that showed demand was 1x, 2x, 10x and it would include a surge factor. Remember the scrutiny it got ?? Then uber over time quietly removed that visibility and alerts for surge. The pushback died down. People are no longer alarmed by surge factors. Airlines don’t tell you how much dynamic is at play. They just give you the price. So there you go. The less visibility you provide the better it is. However customers should high level be able to figure out the key things like early booking is cheaper, weekday flights are cheaper, late night flights are cheaper etc etc. So take a lesson from uber and airlines.

This year has seen plenty of debate around dynamic pricing. In the restaurant space, we saw Capterra claim that it will "Lead to Serious Losses" while Medallia said that 73% of consumers would support it. It's all about positioning. Ask 1,000 customers if they'd pay more when a restaurant is busy. Then ask 1,000 customers if they'd like more ways to save when a restaurant isn't busy, and you will get 2 different answers. The problem with the term "surge" pricing is, it implies that prices only go up. Dynamic Pricing, when implemented correctly, can improve the customer experience during busy periods (lower wait times, better service), AND provide new ways for price sensitive customers to save money. The key is letting them know that.

for me 2 key points: 1. Don't Explain Just the Logic, Explain the Benefits Customers don't inherently care about supply/demand graphs. Focus on how dynamic pricing directly benefits THEM: "Surge pricing can feel frustrating, but it's what ensures a car will actually be available when you need it most." "Our off-peak discounts reward your flexibility and let us pass on savings when there's less strain on our system." 2. Preempt the Negatives Acknowledge the potential frustrations upfront, then immediately frame them with a solution: "We understand dynamic pricing can feel unpredictable. That's why we always display a clear price estimate before you confirm any service."

Negative sentiments could stem from lack of understanding or poorly timed surges. Users may feel blind sided if the surges are not adequately communicated. It's also important to time the surges in a way that it doesn't lead to discontent, especially during emergencies and high-demand low-supply situation, as it could be perceived as exploitation of customer urgency

It almost feels like UBER wrote the book on this entire strategy: Dynamic/surge pricing can have a differential pricing to frame offers at the same time. Surge pricing on Uber Black ? Try uber comfort. Uber comfort too expensive ? Try uber x. Uber X too expensive ? Try uber pool. Uber pool too expensive ? Try uber pool with walking option. Too expensive ? Try taking a taxi instead. Too expensive ? Try taking the uber transit ? So they provided several ways to value when surge pricign kick in. So create differential value.

Frame the dynamic price as a dynamic discount to a higher reference price. A simple example is the car toll in Oslo. The rush hour price is 34 NOK, and the non-rush hour price is 28 NOK. You can frame these prices as "normal price 28 NOK, during rush hours 6 NOK higher" or "normal price 34 NOK, during non-rush hours you save 6 NOK". Research confirms that customers perceive the latter as fairer. Transferred to hotel bookings, you can present the dynamic price with a percentage discount badge relative to the highest possible price. References: see Prospect Theory The example above was presented during the EMAC 2023 conference in Odense [Mamen, Anders Mathias (2023). The effect of price communication on price unfairness perceptions.]

Customers often have a 'normal' price band in their minds for a service - say a price of $8 for a ride from home to office. When this band breaches a certain threshold - say $10 in this case - that's when frustration starts to seep in. Businesses need to be creative in order to manage customer expectation. A few ways can include: 1) Using data to predict surge trend and duration ("surge pricing applicable, trending down over last 10 minutes"). 2) Offer some incentive, so that customers feel they are getting something extra after paying more than normal ("Surge pricing applicable, we will mail you a surprise coupon worth upto $3 post your ride"). This way spikes in demand and customer experience can be managed.

To reduce customer resentment from dynamic pricing, offer alternatives that provide more control and flexibility. Allow customers to choose between different service levels, delivery times, or payment methods with varying prices. Provide tools or information to help them plan, compare prices, or find deals. For example, in a hotel booking platform, you could show price trends, availability forecasts, or cancellation policies for each option.

Dynamic pricing and surge pricing often lead to criticism, which depends on several factors. The central concept is "perceived price fairness", and we know quite a bit about the drivers of price fairness and unfairness. By and large, prices and price changes are perceived as fair if - the price increase is justified by costs. - the customer has a choice to buy a product or a service at a better price-value ratio (i.e., use less popular dates and times). - the pricing mechanism is transparent. - there are also benefits for customers from surge pricing. For example, there is less overcrowding at peak hours. - loyal customers receive a special treatment (lower peak prices).

In my experience, it's really hard for retailers to get data on what customers are willing to pay -- even their own customers! With our Shopify app, ergo, one of the core features we included was pricing insights, so that retailers can see what prices are coming in at and start to understand the consumer willingness to pay in a really quantitative way.

It's not just about avoiding backlash; it's about building trust, loyalty, and a strong brand reputation. In my opinion, this alignment is critical for long-term success and sustainability. Understanding what your customers are willing to pay for and what they perceive as fair and reasonable is at the heart of customer-centric pricing. It requires careful market research, listening to customer feedback, and being attuned to the economic realities your customers face. When you price your products or services in line with their expectations, you not only meet their needs but also create a sense of transparency and fairness that fosters trust.

One option to communicate value is, if the maximum price is known, and the consumer accepts the concept of peak pricing (which I think is now mainstream as utilities have educated nearly every consumer already to this notion), display the % discount of peak price. Reframe the prices in the consumer’s mind as discounts off a peak (book, list, rack, published, etc.) price.

Surge pricing, often implemented in situations of high demand and limited resources, can be justified when addressing the immediate needs of customers in a constrained environment. When demand for a service exceeds its supply, such as during peak hours or special events, surge pricing serves as a dynamic mechanism to balance the demand-supply equation. Illustrative instances include the surge in travel expenses during the Christmas holiday rush, escalated hotel prices in city centers, and the increased fares for ride-sharing services during peak hours. In these situations, surge pricing functions as a tool, dynamically aligning prices with demand levels to optimize resource allocation and maintain equilibrium in demand-supply dynamics.

To avoid consumer backlash from dynamic pricing, align your strategy with customer expectations and values. Understand what customers are willing to pay for, what they consider fair, and what they value most. Avoid using dynamic pricing in situations that could be seen as unethical or exploitative, such as during emergencies or for essential items and loyal customers. For example, in a grocery store, avoid raising prices on essentials during a natural disaster.

Agree customer feedback should not be ignored, but also not strictly followed - as it might take sometime for competitors to follow, especially if new technology is involved. A prime example are Hotels. Only as of year 2000s did Hotels start to apply basic dynamic pricing concepts by leveraging increased internet penetration and online booking. At first the move was met with criticisms, but with time it became accepted. Similar story with Airlines. Only as of 1970s prices could be freely set in the US. Once again at first customer backlash and then acceptance. To be clear: I'm not saying to ignore customer feedback. At the same time if you trust your innovative pricing model, a bit of customer "heat" should be always accounted for.

Establish a robust feedback loop to understand customer sentiment and concerns regarding dynamic pricing. Actively seek and listen to customer feedback through surveys, reviews, or direct communication channels. A well deserved example would be Airbnb continuously refines its dynamic pricing algorithms for hosts and guests based on feedback, ensuring that pricing adjustments are fair and well-received.

In my experience, effectively monitoring customer feedback and adjusting prices is crucial for reducing negative reactions to dynamic pricing. It involves closely tracking how customers respond to price changes, analyzing price elasticity, and understanding the impact on sales, retention, and satisfaction relative to competitors. Prompt, courteous responses to customer feedback, whether complaints, suggestions, or praise, are vital. Making adjustments, such as modifying pricing algorithms, offering discounts or refunds, or explaining decisions, helps align pricing strategies with customer expectations and market dynamics.

Monitoring and adjusting prices based on customer feedback is crucial to mitigate negative reactions to dynamic or increased pricing. By tracking customer responses, you can gauge the impact on sales, retention, and satisfaction relative to competitors. Listening to customer complaints, suggestions, or compliments allows you to respond promptly and courteously. Adjusting pricing algorithms, offering discounts or refunds, or providing explanations may be necessary actions. It's about balancing pricing strategies with customer sentiment to foster long-term loyalty and positive brand perception.

To prevent backlash from dynamic pricing, monitor customer feedback closely and adjust prices as needed. Track reactions and compare them with competitors, and address complaints promptly. If you receive negative feedback, consider lowering prices or offering loyalty rewards to maintain trust and satisfaction.

Change your strategy to offer fair value to consumers via lower prices for earlier commitments, off peak times, higher margin products. Set higher “walk up prices” such that what was previously a surge is a discount off of a walk up rate. Provide clarity as to how and why your pricing works. E.g., ‘buying sooner means paying less’. Consistently deploy these methods in your strategy, your communication, and your customer service. Doing so, particularly in businesses with repeat customers, educates and empowers your customer base. They become advocates, teaching new customers how to benefit from these pricing strategies.

Dynamic or surge pricing is inside out view from seller with underlying principle driven by perceived value for product/service fluctuating with time for buying decision. Obviously no one wants to pay extra for same service and this makes it difficult for buyers to digest this. Best way to handle is to create a choice scenario for buyers i.e. buyers are taking decision on what price they want to pay rather than seller imposing price. Some good examples are like Uber (various options at different price points), booking.com giving nudges like booked by x customers in last 1 hr, airlines providing price ranges +/- 7 days of your preferred date

To avoid consumer backlash from using dynamic or surge pricing, ensure transparency by clearly explaining how and why prices fluctuate. Offer loyalty programs or discounts to regular customers to maintain goodwill. Implement price caps to prevent excessive surges and communicate them openly. Monitor consumer sentiment and adjust strategies accordingly. Lastly, provide alternative options or value-added services to justify the price increases.

Dynamic pricing may seem like the ultimate pricing goal but it does not work for every industry or product. Usually you need to have a good core demand with significant fluctuations. You also need a fairly personalized experience. Think flights, hotels, or Uber - you don’t know what others are paying and there is near constant demand for these product. Another area is e-commerce. Prices can change constantly as inventory levels change. However this makes more sense for singularly purchased products, not regularly purchased ones. This also only really works with consumers. In a B2B environment the best you can do is micro segmented prices and adjust with discounting from there. But once set prices remain relatively static.

The terms dynamic pricing and surge pricing are mistakenly used interchangeably. Dynamic pricing goes beyond merely increasing prices. It involves systematic testing, data analysis and close monitoring of consumer behavior. When dynamic pricing is done methodically, with the use of data and with close consideration of consumer behavior it can not only drive profit growth, but it can also work beautifully for the benefit of customers and providers alike.