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What Consumers Should Know About Dynamic Pricing

Geoff Williams

You've probably noticed it, even if you weren't aware of its name. You see a shirt at a store. It's a little pricey, so you decide not to buy it yet. The next day you return, and the shirt's price has risen $20. Or maybe it's cheaper. That's the thing about dynamic pricing. It describes a price that is dynamic and doesn't remain fixed for very long.

"The most common application is in pricing airline seats, hotel rooms, fashion and seasonal apparel, where supply is limited and demand is uncertain," says Haresh Gurnani, executive director of the Center for Retail Innovation at Wake Forest University School of Business in North Carolina.

But dynamic pricing is catching on beyond airline seats, hotels and clothes. Many zoos have been charging less for less-crowded weekdays. Baseball stadiums do it, charging less for less-popular games and more for the matchups everyone wants to see. Retailers, both online and brick-and-mortar stores alike, are using it. Some department stores have electronic price tags next to their merchandise so sales associates don't have to walk around the store changing prices; it can be done in seconds.

In some cases, "fewer than 250 milliseconds," says Stephan Schambach, Founder and CEO of NewStore, which works with retailers to become better at selling on mobile platforms.

Dynamic pricing meant that on New Year's Eve, if you and numerous people in your neighborhood were hiring Uber to taxi you around after a night at the bar, you likely paid far more than if you'd used the car-sharing service on a quiet Tuesday evening.

So if dynamic pricing worries or excites you, here's what you should know.

It isn't personal. You may feel like a chump if you pay $500 for an airline ticket and learn that your seatmate paid $300, but just as consumers are looking for deals, so too are businesses. You want to save as much as you can. And the business you're buying from wants you to spend as much as you can.

Bruce Reading, president and CEO of VoltDB, an analytics company that works with retailers, describes a business owner's thinking this way: "You need to know who your most valuable customers are; where, and what they've been buying recently; and also what they are doing this very instant."

You can use dynamic pricing to your advantage. If you enjoy the thrill of the chase and finding great deals that other people miss, you can start to see how dynamic pricing can work in your favor -- and how it isn't all that different from shopping in the past.

"Dynamic pricing can be a consumer's best friend ... For those who enjoy bargaining at kiosk shops in city streets, getting the best deal via dynamic pricing can be considered a fun game," Schambach says.

He realizes that some consumers see it as a losing game. Just as some consumers love dynamic pricing, others might consider it their "biggest enemy," he concedes, adding that "for many consumers, consistent fixed pricing is appreciated."

But dynamic pricing isn't going anywhere, so if you want to snag the best deals, it's time to start being a more careful shopper.

Tactics to deploy. So how you can be a more careful shopper? It really just means keeping your guard up a little more than you have in the past. Try to ...

Shop on different days than you normally do. When a business engages in dynamic pricing, it means the price will be most expensive when demand is high. You might start finding that products or services are cheaper when there are fewer people in stores. If that doesn't seem to be true, go back to your regular shopping routine. If you do start finding worthwhile deals, maybe it's time to change your shopping habits.

Shop with different browsers. Some consumers have found that if they use a different Web browser when shopping online, they're charged a higher or lower price. You may also want to try setting your Web browser to "private" mode, so that cookies -- bits of data sent to advertisers -- aren't shared with retailers. Then you can see what price the retailer is offering when it doesn't know who the shopper is.

But resist the urge to do all of your shopping this way. You may not love the idea of cookies being sent to retailers, but retailers often use the data to give consumers better deals. For instance, if you frequently shop at Store A but you visit Store B's website, and Store B knows you shop a lot at Store A, Store B might drop its prices just for you to entice you to come around Store B more often.

Leave your item in the online shopping cart for a few days. If you do a fair amount of online shopping, you may have noticed that some retailers, in an attempt to get you to come back, will lower the price by 10 or 15 percent if you go back to the shopping cart and complete the sale. That can be a useful technique to convince the retailer to come down on the price.

Say something. If you buy a flat-screen TV and realize two days later that it's now $70 cheaper at the store from which you bought it, speak up. Many stores have policies in which they'll refund the extra money you spent if the exact item drops in price within a few days or weeks of your purchase. In part, those policies may be in place because management knows there's nothing stopping you from returning the item, getting your money back and then buying the merchandise again, but it's mostly because stores don't want to make their customers mad.

And that's what you ultimately need to remember: You can always complain if you feel pricing is unfair. You may not always win, but businesses want satisfied and happy customers, and dynamic pricing isn't going to change that.



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