On a recent flight, I checked Uber and Lyft as my plane touched down. By the time I’d shuffled off the plane, walked to the baggage claim, and waited for my bag to be disgorged from the carousel, the price had gone up on me. That’s surge pricing, and consumers are used to seeing it with rideshare apps, airfare, hotels, and concert tickets. I may not like it, but in practice it’s fair enough; those are areas with highly fluctuating demand, and at least in the case of Uber and Lyft, the higher prices incentivize more drivers to make themselves available to meet the rise in consumer needs.
But what if the product in question isn’t an Uber or an in-demand hotel room in Acapulco, but an avocado at my local supermarket? The rise of “dynamic pricing” has consumers up in arms, fearful that they’ll be charged different prices for regular items based on the time of day, the weather, or most worryingly, their personal information.
This practice of different prices for different consumers isn’t new—Coca-Cola was publicly dragged 26 years ago for trialing a “smart vending machine” that charged more for a Coke when the weather was warmer—but with advances in technology and artificial intelligence, consumers are wary of being disadvantaged.
Not all changes in price are considered price gouging, despite what populist politicians from both parties would have you believe. Prices set by the market contain vast amounts of data about ever-changing variables: the price of that avocado reflects information about rainfall in Mexico, droughts in Peru, fertilizer costs, the price of competing goods, health fads, shipping costs, the value of in-store shelf space, and more. It’s natural for that price to change depending on any of those factors.
Still, cost-conscious consumers are fearful of highly-personalized dynamic pricing mechanisms, especially those that would use technology to leverage customers’ personal information—their shopping history, their browsing history, even details of their financial health—and set a custom price. With the rise of artificial intelligence, it’s not hard to imagine scenarios that would have sounded like science fiction 10 years ago.
Retailers should pay attention to this trend. Whether or not the underlying economics are sound, skeptical consumers will be on the lookout for anything that feels unfair.
Communication and predictability will be key as dynamic pricing emerges.