New consumer insight on perceptions of dynamic pricing

With inflation still a major concern for households and businesses, dynamic pricing techniques pose an interesting opportunity. If ‘bill shock’ week-to-week is a frustration for consumers, how will they react to prices that fluctuate by the day, minute or hour?  

This week, Mike Kernot looks at some fresh consumer data collected by Incite’s Services Team to understand how consumers feel about the approach, and draws out some lessons for how businesses should approach this tricky area.

Who benefits from dynamic pricing: brands or customers? 

Most of us have come into contact with dynamic pricing at some point.

Wikipedia defines it as ‘a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demand’.

It is not a new idea. The travel industry has a long relationship with it. A quick comparison of train travel prices at different dates/ times reveals a well-known disparity that reflects peak and off-peak rail demand. Similarly, the price of a ticket on a particular flight can vary enormously day-to-day and hour-to-hour. You can get stung, or you can save a fortune, if you happen to buy when the time is right.

Energy is another sector that flirts with dynamic pricing through time-of-use tariffs and by encouraging customers to use electricity at times when it is more cheaply available (although I wonder how many of us can be bothered to get up in the middle of the night to turn the washing machine on, or run the vacuum cleaner around). Dynamic pricing is even starting to show up in pubs where the price of beer fluctuates at peak times!

Moving past the outrage that (quite rightly) accompanies any discussion on the price of a pint, it seems dynamic pricing is becoming more common and from our perspective, it is showing up in more and more of our client briefs.

So what do customers think of this type of pricing?

1 / Most people think dynamic pricing benefits brands more than customers  

We partnered up with Dynata and ran a poll of n=200 people (nationally representative) that went live last weekend. It’s not the biggest sample but enough to take the temperature on an issue like this and it’s clear most of us (69%) think the benefit of dynamic pricing is firmly felt on the brand, rather than the customer, side.

2 / We assume brands will inflate the price in busy periods

We must be a nation of cynics.

The main reason consumers think dynamic pricing benefits brands over customers is an assumption that brands will inflate their price in busy periods but only offer modest savings in quiet periods (43%).

Another reason is that people suspect brands are well aware most people need to access their services during busy periods (39%).

And a fair few of us (32%) think brands will define their busy periods too broadly to maximise profits.

3 / Remember it’s always about perception, not price 

It can be tempting to assume customers will naturally appreciate the flexibility that comes from dynamic pricing and chalk it up as a benefit, but it’s clearly more complex than that.

Good marketers know the way price is presented is far more important than the price itself, and dynamic pricing is no different. Our research suggests dynamic pricing needs a convincing, accompanying narrative that helps customers look past their cynicism. That is where good research comes in.

Pricing has always been at the heart of what we do. We can help you understand…

• The pricing dynamics in your category
• The brand, product and service perceptions that influence price dynamics
• Consumer attitudes to pricing
• And crucially, we can help you communicate price changes that can deliver better outcomes

If the price of your product or service is on your mind right now, do get in touch.