The Surge of Dynamic Pricing
19th July 2017
Imagine walking into a supermarket where every price is displayed on a digital screen. The prices rise and fall several times a day, in a matter of seconds, based on a constant stream of incoming data.
Schemes such as this have already been rolled out in certain grocery chains across Europe and the US, and the technology seems to be on the cusp of flooding the UK next.
So what might this technology mean for your budgeting and debt management?
At the heart of these developments is ‘dynamic’ or ‘surge’ pricing. This is a pricing system in constant fluctuation, becoming higher or lower in response to demand for a product.
Marks & Spenser recently trialled this in one of their branches, in an effort to beat the queues and crowding caused by the lunchtime rush to the shop for sandwiches.
Electronic pricing was introduced to the sandwich aisles, so their prices could be efficiently altered. In the morning, they were priced more cheaply, whilst the afternoon saw prices rise to their usual levels.
This successfully encouraged savvy shoppers to purchase lunch earlier in the day, which prevented the usual influx around noon, saving customers money, and reducing stress for both shoppers and staff.
Sainsbury’s and Morrisons have also trialled electronic pricing in one branch each, though they have not revealed the results of this experiment.
Many internet retailers have already adopted dynamic pricing – probably since changing prices online is far quicker and easier than altering scores of traditional paper price tags.
Amazon.co.uk updates its prices a staggering 2.5 million times every day. The idea that food prices could become this unstable is worrying to many, but it is very likely that you have already encountered, and benefitted from, this kind of pricing model.
If you have ever bought an off-peak train ticket, or a last-minute deal on a holiday package, you have already seen how dynamic pricing can be beneficial to consumers as well as businesses – you get cheaper travel, and the companies fill empty seats or rooms.
Prices which rise and fall over the course of the day may seem high-tech, and the technology allowing them to do so certainly is, but the concept of dynamic pricing is actually ancient.
Fixed high-street prices were not widely introduced until the 1860s, and before this vendors would determine how much you paid for goods and services based on supply and demand, who you were, and your haggling skills.
Online dynamic pricing makes a science of this. Some companies keep track of customers’ shopping habits and personal details such as age and location, and adjust the pricing of products based on who is buying them.
This tracking also allows such companies to offer you tailored products and deals, making you more likely to increase spending.
How it might affect You
Like any new technology, dynamic pricing on the high-street and in supermarkets would come with pros and cons.
On the positive side, being able to frequently adjust prices could give high-street brands a better chance of competing with online retailers, reinvigorating areas which have seen a loss of customers in recent years.
If the prices of certain products could be adjusted to make them more competitive, customers might be encouraged to go out and purchase the item from a physical shop. Electronic pricing displays could also be used to offer product reviews, or price comparisons.
The adoption of this kind of pricing by supermarkets could also reduce waste, by lowering the price of fresh produce as it ages, making it a more appealing purchase before it becomes unusable.
The trend could also save more savvy customers money, by introducing the possibility of buying food ‘off-peak’. The personalised promotions that such technology could offer consumers might also end up saving them money, if used carefully.
However, the concept is not without its problems. Firstly, the very idea of constantly fluctuating food prices is daunting, and it is unclear how this will affect living costs and the rate of inflation, which is currently unusually high.
The idea of personalised prices also raises questions about privacy which have already emerged in the wake of online retailers hoarding information about people’s shopping habits.
Whether for good, ill, or both, dynamic pricing is coming to a supermarket near you. The practice is already set to hit petrol stations, as retailers announce that fuel prices will rise by about £1 per tank on bank holidays, and during peak school-run times.
UK energy suppliers are also keen to pursue a similar pricing model using smart-meters.
These applications of dynamic pricing could change the way we budget forever, which could in turn affect the way that people in the UK manage debt. Using electricity, or purchasing food and fuel at low-demand times could free up more cash for savings or paying off debts.
Working hours may become an increasingly important factor when it comes to organising budgets.