Unveiling the Deceptive Nature of 'Dynamic' Pricing Strategies
Ever wondered why your ride costs more during peak hours or why last-minute flights come with a hefty price tag? Dive into the world of dynamic pricing tactics that have become a norm in our daily transactions, often leaving consumers feeling deceived and frustrated. Explore the subtle yet impactful ways in which businesses manipulate prices to maximize profits, all while we accept it as a part of the modern consumer experience.
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Have you noticed that your Uber ride costs more at 5 pm on a Tuesday than it does at 8 pm? Or that buying a plane ticket the day before you fly is more expensive than buying it six months early? These surge pricing tactics are so common in our consumer experience that we hardly pay attention to them. It's just the way things are.
In the age of AI, surge pricing, also known as "dynamic pricing" in the business world, is increasingly used by companies to boost their profits and potentially offer discounts to customers during slow demand periods.
However, customers often have a different perspective on this practice, leading to a significant public relations challenge for businesses.
Wendy's had to backtrack on their dynamic pricing plans last month due to backlash from customers. They received criticism for the idea of increasing burger prices during dinner rush.
A spokesperson clarified, "Wendy's will not be using surge pricing. Our intention was never to raise prices when customers are most likely to visit us."
JetBlue recently introduced dynamic pricing for checked bags, ranging from $35 to $50 depending on the time of your flight. Some customers noticed this change before the official announcement and expressed their frustration.
On the other hand, Amazon is known for using real-time data to constantly adjust prices every few minutes. Surprisingly, not many people seem bothered by this practice.
Surge pricing can often feel like a scam because prices remain high despite inflation cooling down. This is partly due to corporations keeping prices elevated. Additionally, the expectation to tip everywhere for everything adds to the feeling of being taken advantage of. We know service workers are underpaid, so we feel obligated to tip, even if it means paying extra on top of already high prices. For example, paying $24 for a salad can make us question our spending habits and consider meal-prepping to save money.
But is dynamic pricing inherently unfair?
Probably not, at least according to Marco Bertini, a professor of marketing at Esade business school in Barcelona.
"It's unfair when there is a perception or reality of profiteering," Bertini explained. "The idea itself isn't necessarily bad. In fact, we've been practicing it for centuries. The issue arises when it becomes excessive in today's world."
It's understandable to be wary of dynamic pricing, especially when it's implemented by companies known to hide unfavorable updates in the fine print, like airlines or banks. It's also reasonable to question the increasing use of trendy AI technology in various aspects of our daily lives.
Bertini, a consultant who helps companies with dynamic pricing strategies, believes that the issue lies in how some businesses poorly execute the implementation.
He emphasizes the importance of transparency. It is essential to communicate to customers that dynamic pricing ultimately benefits them as well.
You may be making more money from some customers, but you're also lowering prices for others to attract more customers.
It might seem fair to keep prices the same, but that approach can lead to more issues in the long run.
Commercial aviation is a competitive industry with slim profit margins. According to Bertini, the ability to adjust prices based on what customers are willing to pay is essential for airlines to survive. While this pricing flexibility may have been taken too far at times, it is still necessary for the industry to thrive. Without this dynamic pricing approach, airlines would struggle to stay in business.
Editor's P/S:
Surge pricing, while a common practice in various industries, raises ethical concerns and public relations challenges for businesses. Customers often perceive it as unfair, as prices fluctuate based on demand, leading to concerns about profiteering. The backlash against Wendy's recent dynamic pricing plans highlights the sensitivity of consumers to such practices.
Transparency and communication are crucial in implementing dynamic pricing strategies. Businesses must clearly convey to customers the benefits they derive from this approach, such as lower prices during off-peak times. By balancing the interests of both businesses and consumers, companies can mitigate the negative perceptions associated with surge pricing and foster a more positive and equitable relationship with their customers.
