The Rise of Dynamic and Personalized Pricing
Prices online can change when there’s a sale or even at different times during one day. The article states that dynamic pricing is when the cost of goods or services increases or decreases based on changes in supply and demand. For example, you might find a plane ticket at a certain price and then check again the next day and see that the price has increased.
Dynamic pricing is supposed to be beneficial to both the seller and the consumer, since consumers will be able to get better deals and more transparency with pricing, but sellers can make a profit as well since people who really need a certain item are willing to pay more if it is the last available. Customers benefit when they find out when sellers are desperately trying to sell a good, because that is likely when the good will be priced lower.
An example of dynamic pricing was when a company named Marks and Spencer decreased the pricing of sandwiches in the mornings so that people would buy lunch early, in order to decrease the lunchtime crowd. There is research being done on whether enabling customers to see how prices change throughout the day will change customers’ shopping habits.
Dynamic pricing affects the timing of a decision that a person makes, which adds different types of information to the decision. This means that they need to rely on information that they know and information about market trends to decide when they will buy a product. For example, if a person wants to buy chocolates, they may realize that the price of the chocolate will be higher before Valentine’s Day and then much lower after that day–and depending on if they need the chocolate before–presumably, when there is increased demand for it–or after, when there is a decreased demand for it, the person can make their decision on when to buy the product. If the person does not have information about market trends, then they may buy the product when it is not the most beneficial to them.
Personalized pricing is when different customers pay different amounts for the same product, based on how much the seller thinks that the customer will pay. It is controversial because the consumer does not know what the seller knows about them and doesn’t know if they are seeing the true market price or not, while dynamic pricing is based on market trends rather than individuals.
In the future, this would involve data such as credit rating, their address, marital status, birthday, and travel history. Travel and airline companies already have access to the previous data except for credit rating and can use the data to change the price based on the customer’s data. For example, in 2012, Orbitz increased prices for Apple Mac computers users because of data that suggested they would “spend up to 30% more on hotel rooms than other customers.” Staples changed its online prices based on how close the user was to rival stores. In 2014, companies like Home Depot and Walmart were found to be changing prices based on the browsing history of the customer.
Personalized pricing may compromise the information that a person may have about a product in the sense that the person is not necessarily making an information-based decision anymore. This is because the seller’s pricing choice for that specific person factors into the person’s decision, whether or not the person knows that the seller is using personalized pricing.
Source: https://www.theguardian.com/global/2017/nov/20/dynamic-personalised-pricing