Canada: Retailers’ use of dynamic pricing skyrockets
Major League Baseball does it, airlines do it, and now retailers are doing it too.
It’s called dynamic pricing, which means prices for products can vary by the minute, depending on supply and demand and a host of other factors that can include your past purchasing history and even your postal code.
“Retailers are very much emulating where travel went five or 10 years ago,” said Jenn Markey, a spokesperson for 360pi, which collects and analyzes pricing data for retailers and brand manufacturers.
“In the electronics sector on Amazon, we’ve seen a price change eight times, nine times in one day.
“I absolutely think it’s become more standard and the number of price changes are increasing. I expect that trend will accelerate.”
Dynamic pricing isn’t new. For decades, retailers changed their prices once or twice a week, based on sales and flyers. But in the digital age, the practice has been speeded up and the number of factors entered into the equation has skyrocketed into the thousands, depending on the product.
Uber raised the issue of dynamic pricing when it introduced a surcharge for booking a ride during peak times.
Sears Canada announced this summer that it would begin revising prices of major appliances and mattresses daily to guarantee the lowest price for customers, and is considering extending it into other categories, said spokesperson Vincent Power.
Most dynamic pricing is happening online because in a bricks-and-mortar store it’s impossible to reprice hundreds of items by hand several times a day. While there are electronic shelving products available that can do so, they are not widely used in North America.
Dynamic pricing can be a huge money-maker for retailers, say experts, but there is a fine line between dynamic pricing and personalized pricing, which can erode consumer confidence — no one wants to know they paid more for a toaster because of their postal code, or because placing their order using an Apple product branded them as affluent.
“We’ve seen some evidence of that,” said Markey.
“Technology has gotten to a point where it’s enabled retailers to get a much better feel as to who is looking at which products when.
“I think obviously, a lot of these things, if not handled appropriately, can undermine customer trust and customer loyalty.”
Coca-Cola learned its lesson when it tried to launch vending machines that changed the price of a serving of Coke depending on the weather — the hotter the day, the higher the price, said Markey. Consumer outrage over price gouging ensued.
Peter Fader, marketing professor, The Wharton School, University of Pennsylvania, believes dynamic pricing should be the rule, not the exception, as long as it doesn’t lead to price gouging.
“It shouldn’t be creeping into retail, it should be exploding into retail,” said Fader, pointing out that dynamic pricing met with resistance when it was introduced into the travel industry.
“People thought that this just would be the most evil, horrible thing and the world is still spinning on its axis and everything is actually fine and when you’re sitting on the airplane next to someone who paid less than you, it doesn’t bother you anymore because there’s probably a good reason for it,” said Fader, adding that the idea was also rejected by Major League Baseball and is now standard.
The history of dynamic pricing in the airline industry has shown that while airlines are trying to maximize the price they charge for seats using dynamic pricing, ultimately they’re kept in check by competition, said Robert Kokonis, president and managing director, AirTrav Inc., international advisory and consultants.
“Airfares in real dollars have fallen since deregulation in 1988,” said Kokonis.
It’s just a matter of time, perhaps as little as five years, before more retailers take up the practice, said Christo Wilson, an assistant professor and researcher in the College of Computer and Information Science at Northeastern University.
His recent academic research found some retailers offering consumers different products depending on whether they were shopping on a desktop computer or a mobile device. Android users saw higher prices.
Consumer reaction to the idea tends to be negative, said Wilson.
“I think the reason for that is the lack of transparency. If you walk into a store and see others using discount coupons, we as a society see that and accept it. But online, it’s not clear whether you are seeing all the same products and prices that everyone else is seeing and it’s not clear why.”
Wilson said his team is trying to develop a tool that users can download and put in their browsers to help reveal differential pricing.
Walmart Canada products are priced differently in different regions — but the company does not engage in dynamic pricing, according to spokesperson Alex Roberton.
“At Walmart Canada we use geographic data to ensure customers are offered the same price online as at their local Walmart,” said Roberton.
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“We do not use any other data to dynamically adjust pricing. We don’t adjust prices frequently throughout the day for an item — we lower prices, online and in store simultaneously.
“Typically this is done overnight.”
Canadians are protected by law from misuse of their data, said Ann Cavoukian, who served as Information and Privacy Commissioner of Ontario for three terms, and is now executive director of the Privacy and Big Data Institute at Ryerson University.
“In terms of how it’s actually enforced, it’s a huge world online and the resources of the Privacy Commissioner of Canada are very limited,” she said.
Source: The Star
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