Will 2023 become the year that consumers get comfortable with dynamic pricing?

Discussion
Photo: Getty Images/apomares
Dec 13, 2022

This is the second in a series of articles from members of RetailWire’s BrainTrust panel speculating on coming retail trends and developments for 2023.

This holiday season has ushered in a period of peak price-sensitivity. Consumers continue to wonder whether or not we’re in a recession, and while spending is continuing on, there’s certainly an understanding that times are tougher. This exceedingly cost-conscious mindset, paired with the deep discounts occurring to clear out record excess, unwanted inventory, is raising the expectations for daringly low prices. As retailers evolve to keep price-sensitive shoppers satisfied, a variety of dynamic pricing models will become far more common in the market in order to ensure price competition without bottom line erosion.

There is certainly sufficient technology to offer shoppers individualized prices, but consumers are fully aware that dynamic pricing doesn’t always, or often, work in their favor. (The recent Taylor Swift Ticketmaster fiasco is a prime example of fluctuating pricing going wildly awry.) Considering how skeptical consumers are of individualized pricing, transparency is crucial when leveraging a dynamic pricing model. While surge pricing à la Uber clearly conveys the why behind a price hike, there’s still a level of indignation felt by many users simply because of how out of their control that hike feels. Enter: “haggler’s market” pricing and more sensitive, communicative dynamic pricing.

In a haggler pricing model, individual consumers negotiate one-to-one with brands via advanced technology. The technology behind the negotiation is responsible for marrying the best interests of both consumers and retailers so that shoppers are confident they’re getting the best deal and brands aren’t slashing margins across the board.

In addition to seeing more negotiation commerce, I expect to see more widespread use of traditional dynamic pricing, but in ways that make consumers more comfortable with the process.

Digital price stickers, for example, that change in real time next to visibly changing inventory numbers will likely become more commonplace. Retailers will have to be sure that this approach doesn’t simulate artificial “limited time only” messaging and is clearly in congruence with actual fluctuations in stock.

Alternatively, messaging that details why prices are set where they are and provides estimates as to when they’re anticipated to go up or down is also an honest and welcomed iteration. I expect to come across this more frequently. Ultimately, the successful use of dynamic pricing in 2023 will require that it is more communicative and empowering for customers at an individualized level. This era of disciplined and researched consumption demands better transparency and tailored price-setting.

DISCUSSION QUESTIONS: Do you think consumers trust that retailers are giving them good deals when they see fluctuating prices? What categories best lend themselves to the various dynamic pricing approaches?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I also see a future where dynamic pricing becomes ubiquitous. The challenge is getting consumers comfortable with the concept."
"If there are pricing discrepancies between online and in-store channels, it diminishes the consumer’s confidence."
"It is funny how you accept things when you perceive things 'have always been that way.'"

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32 Comments on "Will 2023 become the year that consumers get comfortable with dynamic pricing?"


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Neil Saunders
BrainTrust

Prices in retail have always fluctuated, especially online. This can frustrate shoppers, especially if they see prices fall to lower than they paid, but there is a general acceptance things don’t remain static. Individualized pricing – where one person pays a different price than another, may work online – provided consumers don’t find out about it. However such things don’t work in stores where people want to see prices on shelf-edges or on products. And therein lies another issue: ensuring store prices and online prices are aligned. A lot of retailers still struggle with this – including Target where prices online and at the shelf-edge often differ!

Dr. Stephen Needel
BrainTrust

I’m not sure shoppers even notice fluctuating prices. I think you have to work hard and have way too much free time on your hands to pay much attention to this. That said, yes, I trust I’m generally getting the best deal on Amazon, because I rarely find something cheaper elsewhere. I’m also sure that when I look at CVS.com I’m not getting the best price. You live, you learn, trust but verify, and get on with things.

Ken Morris
BrainTrust

I also see a future where dynamic pricing becomes ubiquitous. The challenge is getting consumers comfortable with the concept. I really like the idea of the haggler pricing model as it fosters a give and take approach where the consumer is more in control. If the price ends up to be less than the normal retail price consumers will be happy to play but the challenge of higher pricing is a tough sell. Maybe a combination of dynamic and haggle is an acceptable compromise.

thehonrosie
Guest

You build trust if you have a conversation: “Bigger basket, bigger discount? No problem. Loyal customer benefits? No problem.” Perhaps retailers underestimate how much they have eroded trust already through confusing and conflicting promotions and an abundance of voucher codes.

Gary Sankary
BrainTrust

Short answer — no. Consumers will be skeptical of any scheme where prices fluctuate to meet demand. Consumers hated Ticketmaster way before Taylor Swift — they also complain about airlines and ride-sharing. When they start to see prices change during the day at their grocery store, they’re not going to like that. As this gets more pervasive, I would not be surprised to see state and local governments step in to try to regulate this in the same way many states regulate price integrity.

Paula Rosenblum
BrainTrust

I have to say, my first experience of “surge pricing” and “pricing for extra security” with Uber was in the fine city of Minneapolis. I just called a cab instead. Just no.

John Hyman
Guest
1 month 25 days ago

Great points. Think it through — what happens when you put an item in your basket? Does that lock the price, or will it be higher at the register? Cart abandonment used to be an online commerce phenomenon. Now it will occur everywhere.

Michael La Kier
BrainTrust

Will 2023 become the year that consumers get comfortable with dynamic pricing? No! While retail pricing has always gone up and down, shoppers don’t like knowing its ins and outs. Years ago, there was a huge outcry when Coca-Cola announced dynamic prices tied to temperature. People hate the dramatic price swings of airlines and hotels. Market forces will always drive pricing to change. Overtly naming price changing strategies as “dynamic pricing” connotes visions of an evil genius behind the scenes pulling the strings.

Dave Bruno
BrainTrust

Dynamic pricing — done right — is, in my opinion, here to stay. Amazon and airlines taught consumers that market conditions (inventory, demand, supply, etc.) impact prices. I expect more retailers to begin testing dynamic pricing programs at the shelf, and I expect consumers to adapt their purchasing behaviors accordingly. Systematic haggling however does not seem to me to be as imminent. I suspect we will need a needle-moving retailer to pave the way for haggling to enter the mainstream and, even then, I am not sure how well consumers will react to paying higher prices than their neighbors.

John Hyman
Guest
1 month 25 days ago

Events involving inventory, demand, supply, and even changes in import duties have always impacted shelf pricing. That isn’t dynamic. Buyers often adjust retail prices while the goods are on the water. Raising the price of umbrellas on rainy days? Hardly dynamic.

Paula Rosenblum
BrainTrust

What part of “never” is hard for retailers to understand? The only dynamic pricing that makes sense is lowering the price on day-old baked goods.

We had more than enough experience of “dynamic pricing” during the height of the pandemic, when prices just went up-up-up because of limited supply.

Low price has become table stakes. Change prices at your peril, retailers. Dynamic pricing is a loyalty killer.

John Hyman
Guest
1 month 25 days ago

Bought a rather expensive gift recently. The delivery came yesterday, but today I received an email announcing had I waited, I could have saved 20%. Dynamic pricing will infuriate consumers and further erode goodwill and operating profits.

David Spear
BrainTrust

Although consumers may not like it, dynamic pricing has been around for several years. Think airline pricing, Uber surge pricing, sports/concert pricing. All of these are supposedly based on real-time demand, but it doesn’t mean consumers agree with it. Will these tactics translate to every store item on every store shelf in grocery, in convenience, in apparel? No. It’s tough to apply dynamic pricing to center-store items. I think consumers would have a very hard time digesting this. Edge items have a little more elasticity, and we’ll start to selectively see more items dynamically priced than in the past.

Gene Detroyer
BrainTrust

If I am shopping grocery, I want consistency in pricing. Imagine buying an item off the shelf, and the price changes before you get to the checkout. Good if it goes down. It will be awful if it goes up.

For other types of retailers, shoppers have seen dynamic, if a lot less dynamic, since retail began. Retailers boast their dynamic pricing. Doesn’t Marshalls use a relatively dynamic type of pricing? When inventory gets stale, don’t retailers cut the price?

The difference is that technology makes the changes quicker and less transparent.

Online is a different story. I have always assumed the pricing was dynamic and, frankly, I don’t care.

Dick Seesel
BrainTrust

Dynamic pricing is one thing — if you define it as sale pricing or response to competition — and demand-based pricing is something else. Dynamic pricing is already a practice that shoppers are accustomed to, but whipsawing prices too often can erode shoppers’ trust. Retailers need to find the right balance regardless of their technical ability to manipulate prices quickly.

Cathy Hotka
BrainTrust

Dynamic pricing works only in secret. Imagine TELLING consumers that they’re getting a higher price than people in a different state, or people who logged on at a different time. This doesn’t even begin to pass the sniff test.

Andrew Blatherwick
BrainTrust

Dynamic pricing online is one thing, it is a very different story in-store. On-shelf electronic pricing that changes in front of a consumer would be very alarming and not good for the retail brand. Tesco clearly differentiate pricing for Clubcard holders and non-Clubcard holders and this is incredibly effective as both prices are shown clearly at point of sale. This will become more prevalent and is good for both retailers where it builds loyalty and consumers who get better pricing. Transparency is always the most important thing, if a retailer loses the consumer’s trust they are likely to lose that consumer.

Jeff Sward
BrainTrust
Demand forecasting and inventory management are difficult when the supply chain is in chaos. I get it. And dynamic pricing can deal with demand and supply mismatches at the last minute — at the point of sale. Prices hikes based on limited supply will not be appreciated when it happens in an environment of normalized supply chains. Price hikes might be logical from a pure supply/demand point of view, but that doesn’t mean customers like the idea. Tolerating is not the same as embracing. Price discounts based on rate of sale and weeks of supply make sense for everybody. Surgical pricing happens all the time on the internet. The orange SKU with 27 weeks of supply gets marked down while the navy SKU with five weeks of supply stays at regular price. Makes total sense. Executing that same logic in store is a nightmare for legacy retail models. Sounds like a commercial for more showrooming. It will be better for everybody when retailers can practice better dynamic buying. Actually doing a better job of matching… Read more »
John Hyman
Guest
1 month 25 days ago

Sounds like a commercial for more showrooming — quote of the day!

Richard Hernandez
BrainTrust

No. You cannot expect the general public would accept this type of pricing, especially now.

Georganne Bender
BrainTrust

Unless they see a price change in front of them, I wonder if consumers are aware of the games retailers play. But once they know, they will figure out how to play the game.

Sometimes it’s so bad it’s laughable. I first noticed it in a Las Vegas casino gift shop. Water at peak times was double what it was in non-peak times. Uber and airlines do the same, and it’s annoying.

Consumers want pricing to be fair and consistent in-store and online, and they want the shopping experience to be easy. I am not a fan of dynamic pricing. The brand may be trying to scream “relationship” but dynamic pricing screams “transaction.”

Peter Charness
BrainTrust

Consumers look at changing BASE pricing skeptically. Sales, BOGOs, end-of-season prices, day-old bread — all fine. If you raise the base price — it’s inflation, it’s price gouging, it’s terrible. Send me a deal, sure. Why does Costco get a disproportionate share of my spend? Because I know that at Costco all the pricing in the store is at the very least fair and usually pretty advantageous. Yes if I spend a lot of time and effort, I might be able to find a loss leader or a close-out somewhere else a bit cheaper. But for anything I buy at Costco, I know I haven’t been taken advantage of.

Doug Garnett
BrainTrust

My sense isn’t that consumers will see this as “dynamic pricing” as they don’t think in marketing categories. Instead, they sense unreliability in price and that creates distrust of all prices and, especially, any claims of good or bad pricing.

Companies should be very wary. After all, what product advantage are they creating in reality? The profit on that single sale may look excellent — averaged over a day or two of sales it becomes pennies. Risking consumer trust vs. a gain of pennies? THAT is a bad deal for the seller.

Ken Wyker
Guest

The only fluctuating prices that consumers trust are the ones that go down. The problem is when retailers see dynamic pricing as a way to boost margins by raising prices in certain situations or for certain customers. That is where the concept has risk. Even customers that don’t watch prices will be frustrated that their prices have been increased.

Short term or limited availability discounts are well accepted methods of achieving dynamic pricing that don’t risk alienating customers. Importantly, they can also be targeted/personalized to particular customers or times of day, days of week, stock status, etc.

With direct, one-to-one customer communication of promotional prices via email or an app, retailers can deliver a version of dynamic pricing that avoids backlash and in fact improves customer price perception.

Brandon Rael
BrainTrust

Retail prices are constantly shifting to changing market conditions, consumer demand, competitors’ pricing strategies, and pricing elasticity to provide regionalized and personalized consumer prices. The connected and conscious customer can shop around and discover new items and inspiration at the prices they are willing to shop at. This does require customers to be more self-service and leverage all the digital platforms to find their items at the right prices.

In the continued evolution to meet the connected consumer’s needs, it’s absolutely critical to ensure the online prices are aligned with the store prices. Dynamic pricing requires a data and analytics-based pragmatic view of the customer journey, and customers may go to stores to the showroom and discover new products. However if there are pricing discrepancies between online and in-store channels, it diminishes the consumer’s confidence.

Shep Hyken
BrainTrust

Dynamic pricing works for the retailer, but could backfire when the customer finds out their friend/cousin/colleague got a better price. It causes a breakdown in trust. The customer will always wonder, “Am I getting the best price?”

thehonrosie
Guest

It is vital for both retailer and customer to trust they are getting a win-win deal through the negotiation. A conversation is the perfect way to understand what your customer needs so why not put that personalization into a one-to-one conversation about a deal? Make an offer has worked brilliantly on eBay for years and the only reason it has taken until 2023 to become mainstream is the need for AI to offer it on the scale which works for big brands and retailers.

Oliver Guy
BrainTrust

“I would never shop there again.”

This was the reaction of a friend of mine when I talked about dynamic pricing recently. His thinking changed as the conversation progressed — when he realised he had been exposed to dynamic pricing for many years. Amazon is know for it, changing prices of certain items multiple times a day; some grocers now have customer specific prices — perhaps not dynamic — but arguably just as controversial.

But the biggest area where we have all been exposed to for a long time is the price of petrol (gasoline) which will change depending on time of day — to minimise queuing and maximise margin — and has been this way for many many years.
It is funny how you accept things when you perceive things “have always been that way.”

Ryan Mathews
BrainTrust

In a word, “No,” and in most cases their doubts are well founded. When I see prices going up or down, how am I supposed to know whether or not I got a “good deal?” There’s a reason why year-in and year-out EDLP retailers tend to do better than High-Low pricers. For starters, consumers can figure out when they are getting a good deal much easier in an EDLP model.

William Passodelis
Guest

I have to agree with Oliver Guy. When I have been able to speak to a number of people about dynamic pricing, I have been met with the “that’s not fair” answer. Also, a lot of people budget and a change in price of 2, 3, or 5 dollars may seem ignorable, however, for some people that may be a dealbreaker. It could result in a smaller cart and a lack of return to the store or site. I think this applies to dry goods as well as perishables.

KarenBurdette
Guest

Daringly low prices can kill profits. A race to the bottom, as I’ve seen other financial analysts call it, is not the answer either. Retailers need to strike a balance of increases and decreases based on a lot of different factors but I do think that consumers trust they are getting a good deal when they see fluctuating prices. I also believe that consumers are getting used to this because they are seeing it on the regular with Amazon and their notifications of prices based on previous purchases or items on a wish list.

Fluctuating prices are starting to feel like the norm but retailers need a strategy (and a profit optimization platform) to implement dynamic pricing based on their specific circumstances with inventory and selling channels.

Anil Patel
BrainTrust

Transparent pricing in retailing cannot be ignored. Since fluctuating prices are often confusing, customers do not trust dynamic pricing models. In my opinion, the model could only fit for car dealers, since sales associates there are far more unreliable.

wpDiscuz
Braintrust
"I also see a future where dynamic pricing becomes ubiquitous. The challenge is getting consumers comfortable with the concept."
"If there are pricing discrepancies between online and in-store channels, it diminishes the consumer’s confidence."
"It is funny how you accept things when you perceive things 'have always been that way.'"

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