In contemporary markets heavily influenced by Artificial Intelligence, ‘surge pricing’ or ‘dynamic pricing’ are tactics used by businesses, such as Uber, to boost profitability. Prices are adapted depending on variables like service timing and date. This approach proffers companies the leverage to efficiently manage supply and demand, take advantage of peak durations by upping prices, and attract consumers during low-peak hours by reducing prices.
Nonetheless, dynamic pricing often elicits adverse reactions, creating reputational management challenges. This was evident when fast-food chain Wendy’s faced public criticism for their pricing model, pushing them to announce that they wouldn’t apply surge pricing during high-demand periods.
This pricing strategy is not confined to the transportation and food sectors, even tech behemoth Amazon applies real-time data to modify prices continually. Amazon successfully does this without attracting significant public criticism.
Ethics and transparency in dynamic pricing
While dynamic pricing yields potential benefits such as increased profits and efficiency, firms must consider its brand reputation and the possible negative consequences.
According to Marco Bertini, an Esade business school Marketing faculty member, criticisms frequently occur when it appears like companies are exploiting the system for excessive profit. However, Bertini emphasizes that it is essential for companies using dynamic pricing to operate ethically and transparently to gain consumer acceptance. He stresses that transparency is crucial in averting feelings of consumer manipulation or exploitation.
Bertini also argues that skepticism towards dynamic pricing is generally due to misunderstanding, hence the importance of informed customer education. Dynamic pricing, done correctly, can result in a more efficient market and be mutually beneficial to both companies and consumers.
Bertini insists that for businesses to survive and retain customer satisfaction, it is crucial to implement a fair and transparent dynamic pricing. To attain strategic goals, businesses need to comprehend both the implementation and impacts of dynamic pricing. Thus, if effectively applied, dynamic pricing strategies can substantially enhance a company’s profitability and competitive advantage.
