- The technology exists for retailers to implement sophisticated, profitable dynamic pricing models in their stores, writes Grocery Headquarters. But questions linger over whether the practice is sustainable, and if consumers will tolerate it.
- From a promotional standpoint, dynamic pricing can close the price gap between a company’s online and in-store pricing. It also could combat “showrooming” where consumers browse in store and buy online by quickly delivering competitive prices to shelves.
- Experts note that sudden price changes can appear unfair to many consumers, and that dynamic pricing requires a level of data that many grocers are unable to provide.
Despite its cutting-edge reputation these days, dynamic pricing has been around since the early days of retail, when clerks used to haggle with customers over prices. More than a century later, online retailers have turned dynamic pricing into a science, with vast amounts of data feeding up-to-the-minute pricing changes.
In recent years, the practice has spread to a variety of different businesses — including zoos, sports arenas and ski lodges — looking to maximize their sales by optimizing prices according to weather, demand, availability and a host of other factors. Brick-and-mortar retailers also have begun to embrace dynamic pricing. Kohl’s, which operates more than 1,200 fashion outlets, uses electronic price tags that change multiple times throughout the day, while French retailer E. Leclerc uses electronic tags that can change as many as 5,000 times throughout the week. Kroger, meanwhile, has tested dynamic pricing in the past, and is trying personalized pricing with its new tech-focused store pilots.
Dynamic pricing can deliver higher margins for retailers, and it can serve up valuable data on consumer shopping patterns. But consumers tend to think it stacks the deck in the retailer’s favor. According to a recent survey from Retail Systems Research, 71% of consumers reported they didn’t like the practice. Back in 1999, Coca-Cola tried raising prices on its vending machine sodas when temperatures soared, but had to pull back after consumers complained. Recently, ride hailing service Uber has been targeted by numerous complaints over its surge pricing.
At the store level, consumers may like seeing a product’s price go down, but they certainly won’t like it if that price goes up right as they place the item in their cart. Retailers could institute shelf payment systems that lock in prices, but this would entail another layer of complex store technology. Still, as Amazon continues to gain momentum and poach consumers, retailers may have to find a way to implement dynamic pricing in one form or another.