This is a review of the article titled “A growing number of companies are using “dynamic” pricing” published in The Economist on January 30th, 2016.
“Article on-the-go”: more and more vendors today are adopting dynamic pricing strategies to maximise revenues, but this could backfire as consumers lose trust in vendors if prices become unfair due to dynamic pricing and online retailers who frequently change prices risk engaging in a race to the bottom. Overall, it is best for retailers to focus more on value and less on pricing.
Companies today are shifting prices constantly. Historically, this has been happening for a long time, but it wasn’t possible to realise the full potential of dynamic pricing until the advent of e-commerce. Given the power of the internet, companies are able to adjust prices based on the target customer’s income, location, buying habits, etc. You may be shocked to find out the Amazon changes its price list every 10 minutes based on data it collects from a wide range of sources. This trend has already been adopted by both retailers like Kohl’s, who hosts sales for hours, and infrastructure owner like Cintra, who changes price constantly to ensure a uniform traffic flow of 80 km/hr.
Although dynamic pricing makes perfect economical sense and allows sellers to maximise their revenue, it poses two risks. Firstly, the company could offend customers and lose their trust as was by Uber during a store in New York in 2013 when “surge pricing” were increased to 8x regular price. Secondly, as online retailers adopt dynamic pricing, they risk getting into a price war with competitors as the competitor’s price checking algorithm lowers prices in a race to win over customers who compare prices online. Although retailers know we all want to buy our goods from the most cost-competitive vendor, being overly focused on pricing and getting into a race to the bottom does take away from the overall business as various vendors are only reduced to numbers.