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No one wants to pay higher prices. But consumers wholly resistant to dynamic pricing could miss out on lower prices too.
More than a fifth (22%) of Americans say they would not spend money at a business that uses dynamic pricing, according to a recent NerdWallet survey conducted online by The Harris Poll. But as technology makes price changes increasingly easy, frequently fluctuating prices are bound to become more common.
Dynamic pricing refers to the practice of businesses adjusting prices up or down to account for supply and demand factors. It’s relatively common and growing in popularity. In fact, you’re likely patronizing businesses that use dynamic pricing — regardless of where prices stand.
Dynamic pricing in the public eye
Dynamic pricing first entered the popular imagination last decade with the rise of ridesharing services like Uber and Lyft. Those companies would raise their prices when demand was high, encouraging more of their drivers to get on the road. Drivers benefited from higher wages while riders benefited from prompt pickups, so the companies argued this form of dynamic pricing, referred to as “surge pricing” — which only goes up, not down — was a win-win. But not all riders have agreed.
Neither dynamic pricing nor its surge pricing variant is the same as price gouging — when businesses raise prices to take advantage of consumers without alternatives, such as artificially inflating gas or food prices during a natural disaster. Unlike the unethical practice of price gouging, consumers can actually benefit from prices that fluctuate in both directions.
Dynamic prices can go up. And down.
Dynamic pricing refers to the practice of setting prices based on the real-time supply of and demand for a product or service. Crucially, dynamic pricing can lead to higher or lower prices.
The travel industry provides a useful example. Take a hotel room in Chicago — a great city with much to offer, but frigid winters.
A Chicago hotel might see rooms going fast at $300 a night in July, but drop the price to $150 in December to minimize vacancies during the slow season. That’s dynamic pricing at work. And if you think celebrating New Year’s in Chicago sounds like fun, then you might consider yourself the beneficiary of dynamic pricing.
Dynamic pricing is fairly common
Few industries employ dynamic pricing as comprehensively as travel. As in the Chicago example above, airlines, hotels and car rental companies — and online travel agencies that sell their products — have long adjusted their prices based on seasonal demand. Most recently, JetBlue implemented peak and off-peak pricing for checked bags.
Online retailers such as Amazon use reams of real-time sales data to determine the price at which to offer products.
The happy hour — an attempt to lure customers at traditionally slow times using drink and food specials — has been a staple at bars for decades.
Electricity providers raise rates during periods of increased demand, such as heat waves.
Toll roads and subway systems will sometimes charge more during rush hour than on the weekends.
Dynamic pricing can be effective
A quarter (25%) of Americans say they would only spend money at a business that uses dynamic pricing when prices are down, according to the recent NerdWallet survey.
Consider some of the above examples:
- Have you changed vacation dates to take advantage of lower airfares and hotel rates?
- Have you waited a bit longer to turn on your air conditioner on a sweltering summer day?
- Have you tried a new cocktail place offering a great happy hour deal?
If you answered “yes” to any of the above questions, then you’ve shopped at a business or used a service that employs dynamic pricing. What’s more, you altered your behavior as a consumer in response to the lower price, which is exactly how dynamic pricing is supposed to work.
The complete survey methodology is available in the 2024 Cost of Beauty Report, published at NerdWallet.
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