Surge pricing, it’s older than you think, but not without risks
Surge in the spotlight
“Surge” or “variable” pricing is once
again in the spotlight – also known as “dynamic pricing”, “demand pricing” “time-based pricing” or sometimes “personalised pricing”. Recent BBC reports have highlighted supermarket trials in which different prices are applied at different times of day. Less transparently, some e-retailers are using data to tailor prices to customer’s buying habits or assumed wealth. Although many will associate variable pricing with Uber, the use of technology to customise pricing has been around for a long time. Mac users were directed to more expensive hotel rooms than their PC counterparts in 2012, and Coca Cola tested a vending machine that charged more in hot weather in 1999.
The risks and benefits
Businesses wanting to vary prices for consumers will however need to be aware of the different legislation regulating this area, including potential discrimination issues and breaches of consumer protection law (business to business contracts are not as heavily regulated, although you would still need to be wary of potential competition concerns). The Office of Fair Trading (now superseded by the Competition and Markets Authority) consulted on the issues back in 2013. Since then, the ability and willingness of retailers to collect and use information about customers to inform pricing has only grown and new data protection laws coming into force in May next year will also bring new compliance challenges. Dynamic pricing has also moved into bricks and mortar retail where, responding to pressures from new market entrants (discount retailers in particular), the big supermarkets are investing in digital shelf labels which enable prices to fluctuate much more quickly than regular price labels. Purported benefits include the ability to change 10 million prices within 24 seconds, cut food waste and bring greater price accuracy.
Discounts not price-hikes?
The media focus on variable pricing illustrates that it can prove unpopular, particularly when businesses are not transparent about pricing policies, and even more so where pricing is based on assumed wealth or other personal characteristics. Promises about price equivalence with competitors could also be difficult to maintain if prices are fluctuating in this way. Targeted discounts (rather than potential increased prices) are a more popular way of personalising prices. Overall, retailers still need to tread carefully and consider all the angles in order to benefit from this growing trend.
For more information on data protection and consumer law issues, please contact Elliot Fry at firstname.lastname@example.org or on +44 (0)1732 224 034
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