Don’t Look Back in Anger: How businesses can adopt Dynamic Pricing without frustrating customers
George Fairfield
Managing Consultant at Capgemini Invent || Passionate about helping clients transform and succeed in the evolving retail landscape || #getthefutureyouwant
A few weeks ago, I, and 14 million likeminded people spent multiple hours in a virtual queue trying to get tickets for next year’s reunion shows by Oasis. But for the 10% of people that were successful (of which unfortunately I was not!) when they did eventually get through to a ticketing page, they were met by a nasty shock.
Within hours of the ballot opening, tickets with a face value of ￡148 were being priced over ￡200 more than advertised at ￡355, because of ticket selling platforms so-called ‘dynamic pricing’. Fans were left with a difficult decision – miss out on a potential once-in-a-lifetime experience; or shell out significantly more than they were expecting in a time when many households are already feeling the pressure after years of high inflation.
It didn’t take long for voices in other industries to also float the idea of dynamic pricing, but they were met by swift rebuttal from consumers. After an announcement by top-flight Spanish football club, Valencia CF, that they would use a similar system for ‘dynamic pricing’ of tickets for their home football matches, the English Football Supporter’s Association were quick to hit back at ‘greedy [football club] owners in their attempts to ‘infect football’ and ‘exploit supporter loyalty’, who promised that ‘underhand increases would be met with opposition’.
But what exactly is dynamic pricing? Is it fair? Should businesses be looking to adopt these pricing models? And how can they do so without similar backlash?
Dynamic Pricing at Work
Dynamic Pricing is a strategy where businesses adjust their prices based on demand, time, competition or even data like your location or device type. It’s already commonplace across several industries, from ridesharing and airlines to online shopping and even electricity providers.
At its core, dynamic pricing is all about supply and demand. When demand is high – like everyone trying to book flights in school holidays – prices go up, with the aim of encouraging only those willing to pay more to make a purchase. When demand is low - like an early morning taxi ride – prices drop to entice more customers to buy.
Businesses use algorithms to track real-time demand, competitor prices and even factors like weather or local events to automatically adjust prices, in order to maximize their profits whilst staying flexible in market conditions.
But whilst dynamic pricing can sometimes benefit you (like grabbing a bargain on a product in an online store late at night), as many experienced this weekend, it can also lead to frustration and mistrust. So, let’s break down the key concerns consumers have with this pricing strategy - and what businesses can do to ease these worries.
Why Dynamic Pricing Makes Consumers Wary
1. The Mystery of Changing Prices
Have you ever kept an eye on a flight, only to see the price jump when you’re ready to book? Or noticed how hotel prices fluctuate wildly in the span of a few minutes? The lack of transparency around why and when prices change can make consumers feel like they’re playing a never-ending game of cat and mouse. Without a clear understanding of how these prices are set, it’s easy to feel cheated.
?2. Exploitation During High Demand
Sure, you expect prices to be higher around the holidays, but what about emergencies? During a crisis or when demand spikes suddenly (like it did for Oasis tickets on Saturday!), prices can skyrocket, leaving consumers with no choice but to pay inflated rates. This can feel especially unfair when it comes to essential services, like ridesharing or even grocery deliveries.
3. Unfairness Feels Personal
Imagine you and a friend are booking tickets for the same concert at the same time. But because you live in different areas or are using different devices, you’re being charged two different prices. Ouch, right? It feels like you’re being singled out, and no one likes to feel like they’re paying more just because of factors beyond their control. Dynamic pricing can sometimes lead to this feeling of unfairness.
4. The Fear of Missing Out
Dynamic pricing can create a sense of urgency. The fear that prices will jump at any moment can push consumers to make snap decisions. This pressure doesn’t just lead to buyer’s remorse; it also adds stress to the shopping experience, which is supposed to be enjoyable - or at least not anxiety-inducing!
5. Eroding Trust in Brands
When prices feel unpredictable and inconsistent, consumers start to lose faith in the brand. If a company can’t provide stable, understandable pricing, customers may decide to take their business elsewhere. This erosion of trust can be hard to rebuild, especially in industries with fierce competition.
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So, What Can Businesses Do About It?
Dynamic pricing isn’t inherently bad, but businesses need to handle it carefully to avoid alienating their customers. Here are some ways they can address these concerns and make the experience smoother for everyone.
1. Be Transparent About How It Works
Businesses should let consumers know why prices fluctuate and how dynamic pricing benefits them. A clear explanation (like how Uber informs users about surge pricing) can make a big difference. When people understand the reasoning, they’re more likely to accept the changes without feeling like they’re being taken advantage of.
2. Cap Price Increases During Peak Times
No one likes feeling gouged, especially during times of high demand. Businesses can avoid the appearance of exploitation by capping price increases during these times. For example, some energy companies put a limit on how high electricity prices can go during peak periods, which helps keep consumer outrage in check. If the ticket selling platforms had adopted a similar approach, they may not be facing the CMA investigations they are now.
3. Offer Discounts and Loyalty Rewards
Consumers who regularly use a service should feel valued, not punished by dynamic pricing. Offering discounts, loyalty programs, or early access to lower prices can help businesses keep their best customers happy, even if prices fluctuate for others.
4. Educate Consumers on the Benefits
Many people don’t realize that dynamic pricing can actually work in their favor, especially during off-peak times when demand is low. By educating consumers on how they can score deals or save money during less busy periods, businesses can turn a potentially frustrating experience into a positive one.
5. Avoid Price Gouging in Emergencies
In situations where consumers rely on essential services - like during natural disasters or global crises - businesses should make a commitment to fair pricing. No one wants to see prices skyrocket when they need a ride to safety or when essentials like food and medicine are in short supply. By maintaining ethical pricing during these times, companies can build long-term trust.
6. Provide Excellent Customer Service
Sometimes, things go wrong. A consumer might feel they were charged unfairly or didn’t understand the dynamic pricing model. Having responsive, empathetic customer service can go a long way in diffusing frustration. Offering partial refunds, explaining pricing changes, or giving customers a deal on their next purchase can turn a bad experience into a better one.
The Bottom Line
Dynamic pricing isn’t going away anytime soon - it’s an efficient way for businesses to balance supply and demand and is likely to be introduced further by more companies across different industries. But for consumers, it can feel frustrating and unfair if not done thoughtfully.
The key for businesses is to be transparent, fair, and to communicate clearly with their customers. With the right approach, dynamic pricing can work for both companies and consumers, creating a win-win situation where everyone benefits.
For the 12.5 million of us though, who missed out on the chance to see Oasis live, we’ll just have ‘Roll With It’ & ‘Stop Crying [our] Hearts Out’.
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Capgemini Invent has a comprehensive Pricing & Promotions proposition that covers dynamic pricing amongst many other pricing strategies. To find out more about how your business can adopt these pricing models or upgrade your pricing capabilities please reach out for a conversation.
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