Dynamic Pricing: A Game-Changer for Your Budget?

Technology and retail have a long history together – from the introduction of barcode scanners to implementing self-service check-out machines. Now, dynamic pricing promises to evolve our shopping experience like never before.

You spot that item you really want to buy online… You wait, check back a couple of days later and the cost has shot down. Now, it’s now well within your price range, so you hit buy and check out. But what happened to that price: Is your brain playing tricks on you? Is it a sale you didn’t know about? Or is there more to this welcome conundrum than meets the eye?

A new technology

To understand this, first let’s consider the biggest trends in technology: Automation and artificial intelligence. These software applications can gather vast amounts of data on you – including things like your browsing history and what you’re watching on TV. That’s how Google can show you relevant ads online; that’s why Netflix can pick exactly the sort of shows you should watch next.

Dynamic pricing software takes this data collection and personalisation operation a step further. Armed with ‘pricing bots’, companies can now precisely assess who you are, what you’ll likely want to buy, and how much your approximate budget is. It’s all based on the gathering of both macro and micro data, gauging your perfect price point through both the demographics of similar profiles to you (area, age, income and so on) as well as your individual order history (so, ironically, you’ll have to keep buying to supply companies with more accurate data).

The shop’s automated software can then make on the fly changes to the price of items based on that – bringing costs down to the price most attractive to you, and making much more likely that you’ll make a purchase. Hell, it’s so easy for any online seller, that even dating app Tinder is getting in on the action.

That doesn’t mean you’ll walk away with a £20,000 car for £2.50. The software operates under strict rules, set up by the business, but it does promise to make shopping just that little bit more affordable. Companies would, after all, rather make money on their goods, rather than have them fester in a warehouse.

Real-world impact

It’s incredibly easy for online shops to deploy those pricing changes – it’s written into the software, and the internet is already fluid, which means customers are used to fluctuating prices. Dynamic pricing, then, had initially put real-world bricks-and-mortar stores on the back-foot. While, online, shops can hit a button and see the price change instantly, it’s far more resource intensive for offline shops to do the same. To combat that, Tesco, Sainsburys, Morrisons, and Marks and Spencers have all trialled dynamic pricing through the use of digital labels; ‘smart shelves’ already prevalent in European stores.

Toby Pickard is the senior innovations and trends analyst at IGD, a grocery research firm, and he believes that UK retailers’ introduction of such technology will prove incredibly beneficial for them. Dynamic pricing allows shops, whether online or offline, ‘to gain more data about the products they sell; for example, they can closely gauge how prices fluctuating throughout the day may alter shoppers’ purchasing habits, or if on-shelf digital product reviews increase sales.’

Caveat emptor

So, dynamic pricing is the new ideal, right?

Well, there is at least two potential problems: For one thing, customers may be unhappy to learn they’ve paid a higher price than their neighbour for an identical product, and boycott such shops. You can see the headlines now…

Another issue – indeed, a more immediate threat – is that dynamic pricing could lead to far more impulse buys. That’s good for businesses, but presents a serious risk to your carefully managed finance budget. However, if you play it smart with those ‘too good to be true’ purchases, dynamic pricing could help make life that little bit more affordable.

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Master of the budgets. Provider of the tips. Author and owner of Dumbfunded.co.uk.