Dynamic pricing is now expanding from travel and hospitality to other sectors. How will it work?
We are familiar with dynamic pricing in travel. We expect to find a cheaper flight if we book far enough ahead or a last minute holiday package might be heavily discounted. But how will it work in, say, food or fashion? This was explored in an excellent article in Catalyst magazine (Q1 2021). Dynamic pricing is coming fast, according to Gartner, a researach firm. Why does it say this? The reason is that algorithms will be so sophisticated in 5 years’ time that mobile apps will adjust in-store and online prices for food, clothing and other items in real time. This means they will match prices to supply and demand much more accurately than now. That will happen because the new automated algorithms will be more fluid and precise. So we should expect nothing like traditional sales and supermarket yellow-label discounting.
How will it work?
To predict consumer demand in a post-Covid world will be hard, industry experts are saying. Dynamic pricing, however, will be key to setting prices to help recovery as firms make up for lost growth. New products on the market, particularly fashion, might be competitively priced but later prices will go up as demand increases and stock runs out. But how will this affect brand loyalty? That’s a good question and the travel and hospitality sectors show us that consumers do not lose respect for a brand that uses pricing fluidly because they understand how the model works in real time. In fact, the reverse may be true – that products always on sale can actually diminish brand loyalty.
No-one is suggesting dynamic pricing on the basis of demographic groups which could be seen as discrimination. Instead, everyone will be using it to match supply with demand, as the travel sector does.
Cut out waste
Food waste is a global problem particularly at the retail level which accounts for 40% of total food waste. So could dynamic pricing help to eliminate some of this? Experts predict daily changes to fresh food prices depending on shelf life in order to reduce this unsustainable waste. That would be much more efficient than simply discounting with a yellow label a few hours before the shop closes. This article on the Forbes website has more on dynamic pricing.