SXSW learnings: Dynamic Pricing

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Guest Post by: Rick Burgess

Why we have price tags

The concept of a price tag on every product is actually a relatively recent idea. Up until about a hundred years ago, the expected method of purchasing something from a store was to select what you wanted and then barter for the price you wanted to pay.

The problem with this process was that customers felt  disadvantaged to the shop keeper, who was a much more experienced trader, and so the price tag was born. This ensured that every customer got the same deal.

And today?

Skip forward to today and we are starting to see a change in how products and services are priced. In several industries, such a travel, companies are changing prices frequently based on environmental variables like supply and demand. Take hotels at SXSW as an example, hotel rooms cost much more around the time of the festival due to the huge increase in demand.

This trend of dynamic pricing hasn’t spread to far into the retail sector yet, but with the increase in mobile usage retailers are starting to look for ways to tap into the vast amount of personal data you are carrying around with you.

We already have some services trying to work in this space. Tools like foursquare and Groupon are allowing retailers to offer savings to certain groups of people, but that’s just a scratching the surface of dynamic pricing,

With the increased adoption of NFC in the next 12 months we could see increasing numbers of retailers offering personalised pricing, that is just for you, based on anything from the amount of friends you have on Facebook, to the last time you tweeted.

There are some risks associated with this model. A few years ago Amazon experimented with a system which offered users a unique price based on location, time on the site and even what browser they were using. There was huge backlash because Amazon didn’t inform customers about the system and so users felt that they were being discriminated against.

The key to a successful dynamic pricing model is to be transparent about why you are offering each price otherwise your customers could feel alienated and cheated.

Photo credit: NeilT on Flickr

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