Dynamic Pricing– a New Business Landscape

Dynamic Pricing– a New Business Landscape
  • With all the retail applications of digital signage, from non-sales applications like wayfinding to “soft” sales applications like branding, to full sales lift applications, it’s amazing that to date there has been little discussion about dynamic pricing. In the economy as whole, beyond our industry, dynamic pricing is taken for granted in some sectors, and is creeping into others.

David Keene
Dynamic pricing is most easily illustrated with ticket pricing on airline seats. In that sector it’s been around so long it’s hard to remember any other model. You have to go back to the years when airlines were highly regulated and commercial airline flights were way more expensive than today. In today’s commercial flight market, there is of course no fixed price for a seat on a plane from Dallas to New York. The price changes by the minute, according to supply and demand. That seems so obvious and so logical to us, no one questions it. We pay what the market says, that minute, or wait a few hours or a few days and see if we can get a better deal. So why aren’t more things in the economy priced that way? Well, some are. Houses, buildings, cars, and many other things, usually at the high end, vary in price as demand changes. But even with those examples, there is no automated, instant, dynamic pricing function. Why aren’t prices at, for example, popular restaurants, dynamically priced? If that hot new restaurant in town has a huge wait list to get a table every weekend months running, why doesn’t the management simply raise the menu prices on those nights to balance supply and demand and both maximize profits and make up for those dead Monday-Wednesday nights? Some things, consumers might resist. Getting a table at that cool restaurant makes you feel good about yourself, that you’re a winner. If you had to pay extra for it that special feeling might evaporate. That’s not about a slight increase in cost, it’s about customer loyalty and the customer wanting to feel special. But as younger tech-tethered consumers start dominating the demographics all that could change.In fact, dynamic pricing is going to start showing up everywhere. That golden age of feeling good about getting a good deal might soon be over. Look at Uber. What’s disruptive, or innovative, about Uber is not the "sharing economy" aspect. The really revolutionary part of Uber’s business plan is their dynamic pricing. Uber can, at their instant discretion, charge the customer “surge pricing” when demand is high. Conventional taxis never did this– they never had the software to do it even if they had wanted to. As Uber and other app-based ride share companies take over the market, rides in those cars will be like airline tickets– the price will vary according to supply and demand. Ultimately, drivers will get paid less (they are independent freelancers with no bargaining power and so are subject to quick changes in their own “price”), and riders will pay more, resulting in better profitability for the company– which is why Uber, still at the beginning of its market share– in its latest fundraising round saw its valuation rise to more than $68 billion, more valuable than General Motors Company, and Honda– and that with revenue of only somewhere between $1.5 billion and $2 billion in 2015. Uber is the writing on the wall– or on the billboard if you will– for what’s coming for many parts of the economy. Check out Irene Chow’s article for Digital Signage magazine, "Dynamic Pricing– the Next Frontier". For our industry there probably won’t be a lot of fuss from customers over the new dynamics– because in retail, discounts will drive the market, not “surge” pricing. It should be a boon to business for everyone.