Home Forums Money matters Is Dynamic Pricing or Contextual Pricing Unfair?

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  • #999756
    JamesMillar
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    • Total posts: 1,676

    Was involved in an interesting discussion about this recently (admittedly after reading and interesting book on the topic).

    In short dynamic or contextual pricing is the pricing of goods and services in a variable manner that changes based on various elements generally associated with supply and demand at that time. It’s been around for a while in many industries (particularly transport and aviation), movie tickets, UBER surge pricing etc etc. However smaller businesses are increasingly using dynamic pricing because they have the now have systems to cope with it.

    Two schools of thought

    1. It’s a fair pricing method because it represents immediate supply and demand equilibrium at that time. Customers are happy at that value (no more) and suppliers are happy as well.

    2. It’s an unfair pricing method because it might be opportunistic and some may feel this is a form of exploitation. The old example…..How much would you pay for a fire extinguisher while cruising the isles of bunnings on Sunday morning. Maybe $25? Contrast that with how much would you pay for the same fire extinguisher if your kitchen was on fire and you had no other means of dealing with it? Probably a lot more than $25 at that exact time. Its more valuable to you at that time but is it fair that the supplier charges you more to recognise that?

    Anyway its an interesting debate and I can see pros and cons with each. I guess competition is a key ingredient because it tends to keep businesses honest so arguably this is more risky in less competitive industries.

    Worth thinking about because it may be coming to your business sooner than you think.
    One thing is for sure – pricing should be your number one focus in business because its the easiest method of all to take money off the table without necessarily doing anything else. No extra costs just pure bottom line profit. Get your pricing right before doing anything else and review regularly.

    #1221245
    Rowan@quaotic
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    • Total posts: 712

    It is everywhere, even supermarkets do it – the same products are priced differently depending on the affluence of the suburb. Coke prices its products depending on what the people of different countries are prepared to pay. I think it is unfair generally and don’t like it. It is also bad for your social rep when it becomes common knowledge.

    #1221246
    Paul – FS Concierge
    Moderator
    • Total posts: 3,126

    It seems that the concept of “fairness” is intrinsic in the discussion.

    The supermarkets were lambasted for doing it within tight geographical regions – especially the same city. It was seen as unfair to charge 2 different prices for the same item based on where the customer lived.

    On the other hand, where there is a relationship between availability and demand, as in peak transport times or holiday times for transportation, people accept it.

    There are “hacks” out there for the people with the motivation to buy services from global services from different countries eg, buy Netflix from India at a cheaper price than Australia.

    Interestingly, my personal moral compass does not think it is “fair” for the consumer to get this better deal.

    On the other hand, consumers see offers for new customers that are better than prices achievable from existing, especially, long time existing customers as being unfair eg, get xxx service for 3 months at half price.

    Tied into this, is lowering prices where customers threaten to cancel – recently, the SMH did a story on how some customers get Foxtel cheaper by calling the cancellation line and threatening to quit the service – a bit of a (short term) PR disaster.

    #1221247
    JamesMillar
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    • Total posts: 1,676

    I guess the level of industry competition helps solve this problem because it tends to weed out the difference between those that are engaging in exploitation (because of lack of alternatives) versus those that are engaging in a more legitimate industry wide pricing system to commercially regulate peak supply and demand.

    I think every small business should be aware of the importance of correct pricing and methodology. There are many potential ways a business can charge for their product or service. Bundles. Subscription models. Minimum contracts. Time based pricing. Unit based pricing. Cost plus, premiums for peak times / periods / service levels etc. It is quiet possible that you may be able to generate 10% or more revenue just by better pricing management and importantly still satisfy all of your customers in the same way. Not everyone should necessarily pay more (some may be pay less in some cases). But those that do pay more are generally getting more value if setup correctly which means the equation is not a simple price hike.

    Pricing is a science and an important one even for FS members.

    #1221248
    bb1
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    • Total posts: 4,472

    I don’t agree with it, but I do on occasions apply it with some of my work. I tend to charge the same base rate across the board, accept for commercial jobs because there I need higher insurance, so they pay for that across the year. I even charge the same if I end up working on weekends, because it suits me.

    But I will use surge pricing, if someone rings me and wants a job done yesterday, or on xmas day, or other ”urgent” type things, in particular if I have already pulled the pin for the day, or have to do major juggles of my regular clients. I look at it as they are paying a premium for inconveniencing me or my other clients, because they failed to plan ahead. I quote them a price, they have the option of saying yes or no. If they say yes I dont see that as unfair as they have the option to say no.

    The other jobs I do it with are jobs I don’t want, I’ll work out the price based on a standard job, then add my ”I don’t want it markup”, sadly I still get a lot of these jobs, but the pain isn’t as great when you get paid.

    #1221249
    bb1
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    • Total posts: 4,472
    Rowan@quaotic, post: 267175, member: 28171 wrote:
    It is everywhere, even supermarkets do it – the same products are priced differently depending on the affluence of the suburb. Coke prices its products depending on what the people of different countries are prepared to pay. I think it is unfair generally and don’t like it. It is also bad for your social rep when it becomes common knowledge.

    [USER=28171]@Rowan@quaotic[/USER] does it really hurt their social rep, Coke is still one of the biggest sellers, people still subscribe to Foxtel and Netflix (use pauls example). People still buy from the supermarkets.

    #1221250
    Rowan@quaotic
    Participant
    • Total posts: 712

    I suppose you are right. People have short memories.

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