• March 30, 2016

Pricing: How important is equity in dynamic pricing?

Pricing: How important is equity in dynamic pricing?

Pricing: How important is equity in dynamic pricing? 698 400 Opportunity Into Revenue

This question was raised in a wonderful article from the Jan 30, 2016 issue of The Economist.

Here are two key quotes from the article:

“Even if the technology becomes more sophisticated, there are two risks for businesses with dynamic pricing. The first is psychological resistance: companies’ reputations can suffer if they offend customers’ sense of fairness…. The second risk with dynamic pricing is that it ends in a race to the bottom.”

The point about “fairness” or equity in pricing deserves more consideration by marketers, financial analysts, and CEO’s.  Some forms of pricing discrimination are readily understood and accepted — examples include discounts for larger volume purchases, standby tickets on an airline, remainder inventory on clearance sale, etc.

But some dynamic pricing tactics are simply greed enabled by technology — such as charging more if a consumer appears more affluent (either online or in person), charging more due to gender, charging more due to ethnic differences, etc.

Technology enables dynamic pricing.  But old-fashioned judgment and equity need to guide pricing practices.  Upper limits on “prime-time” surcharges by Uber are the first of a wave of adjustments and equity-based practices, I hope.

Don’t assume that this is a minor issue, either.  A “rigged” economy is being decried by presidential candidates from BOTH major U.S. political parties.

Expect to hear more various forms of “equity” in election campaigns this fall.  In the meantime, consider whether pricing practices in your organization are understandable and equitable.  The answer could be crucial to your long-term market share.

Photo attribution: Mark Capaldini, St. Mark’s Square, Venice, Italy 2012