Dynamic Pricing

In the hospitality industry hotels use dynamic pricing to adjust the cost of rooms and packages based on the supply and demand needs at a particular moment. In the transportation industry airlines change prices often depending on the date, number of days before the flight, how many seats a flight has, departure time, and a variety of other factors. Some professional sports teams use dynamic pricing, Sports that are outdoors have to factor weather into pricing strategy, in addition to the date of the game, and the opponent. Tickets for a game during inclement weather will sell better at a lower price; conversely, when a team is on a winning streak, fans will be willing to pay more. Disneyland and Disney World adapted Dynamic Pricing in 2016, and Universal Studios followed soon after. During the summer months, when demand is high, the parks charge higher prices, whereas ticket prices in winter are less expensive. Perhaps the most well known example is Uber, the same $20 ride home might cost upwards of $100 on New Years Eve!

The nation’s largest Retailer, Walmart, recently concluded a test for electronic shelf labels. It went so well that Walmart plans to update all 2,000 plus locations with electronic shelf labels by 2026. Every new item, rollback, markdown is a repetitive and time consuming manual task. With this update Walmart will be able to change prices at a moment's notice. Considering Walmart stocks more than 100,000 different products on their shelves at each location to say this will save considerable labor and label costs would be an understatement. It would also be nice while shopping to have the confidence that when you add items to your cart the price is updated correctly on the rack. Doing a markdown is a much different process than dynamically changing the price based on demand or environmental factors; time will tell and we will have to wait and see how exactly Walmart will use these new electronic shelf labels.

As it turns out most people don’t like paying extra but have accepted it when it comes to Amazon or Ticketmaster to name a few. Is it that Wendy’s is a fast food restaurant and they are supposed to be inexpensive? What would the difference be from Wendy’s charging more during peak periods, or Super Bowl tickets priced so much higher than regular season tickets or airlines increasing ticket prices around christmas? In New York will the new legislation ban all dynamic pricing? Not just food prices? Dynamic Pricing can be beneficial or impact people negatively. If the brand chooses to price gouge or engage in other forms of malfeasance in my opinion customers will simply stop frequently that brand. Dynamic pricing can be beneficial too. If a company is overextended or over capacity on certain inventory they can dynamically reduce the price of certain items to push the sale to reduce the heavy inventory. There is already legislation, The Robinson–Patman Act (RPA) of 1936, prohibits anti competitive practices by producers, specifically price discrimination. Amazon in 2000 was caught engaging in price discrimination and publicly apologized and gave some refunds, but have they stopped?