Dynamic demand pricing may have started in the airline industry, but it's stretched out everywhere from retail to the pricing on apartment rentals.
What exactly is dynamic demand pricing? It's the idea that price moves up and down based on demand. Airlines have long used dynamic demand pricing (aka yield management) to determine the price of seats on flights. The airlines use historical analysis, behavioral patterns of buyers, the rate of bookings and even unemployment rates plus any other number of factors to control the price per seat. No two seats are sold for the same price.
Here's an example: The Wall Street Journal reports the Indianapolis Zoo used to charge $16.95 for admission. But now, you might pay anywhere between $8 or $30 to get in the gate based on what's going on that day, the weather, expected demand and many other factors.
The newspaper even reports Kroger -- the nation's second largest grocer -- is experimenting with electronic price tags at one store. So you might put a box of cereal in your cart thinking it's $1.50...and then when you get to checkout it out could cost $1.59 or maybe even 99 cents!
Sports and concerts are a hotbed of dynamic demand pricing
You want to go to a hot regular season basketball game? It could cost you a fortune thanks to dynamic demand pricing.
Concert promoters and sports teams have decided they're not going to let the scalpers have all the fun. They're bringing true economics to the cost of buying a ticket. I've talked over the last couple of years about efforts that started with the San Francisco Giants using yield management software to adjust prices up and down as demand picked up and waned for a sports event.
One of my TV producers wanted to go to NBA game featuring the Miami Heat -- one of the hottest tickets in the NBA -- and the team's website was offering $600 seats for nowhere near close to courtside.
This is the new reality. You'll see more and more of this kind of thing with baseball and basketball teams, both sports that play very long schedules.
Not all games created equal. On the flipside, if a bum team comes to town that means dirt cheap tickets. Pricing will be impacted by the day of the week, the opponent, what time in the season it is and other factors. If you're seeing tickets that are too much, try waiting it out. If the event doesn't sell well, prices will go down, not up.
Under this new model, baseball games can end up being as cheap as $3 a seat or as much as a couple hundred depending on the opponent and where you're sitting.
When it comes to concerts, the price points are moving further and further apart inside the arena. Super fans might pay very high prices for close up seats, while back of the house seats are typically very cheap. So somebody on a tight budget who can't see afford to see the Rolling Stones for $60 may be able to see them with high power binoculars from the top rows for $20.
The key thing to remember is that the price is no longer the price!
Here's a variant on dynamic demand pricing that cost you money -- or save you big time!
Should you pay more when you're shopping online simply because of the browser you're using? Some popular online retailers think so!
The New York Times reports shoppers are getting widely different prices based on whether they use Chrome, Firefox, Internet Explorer, or Safari. Here are just two examples:
- For the same Samsung TV on NewEgg.com, a Chrome user was offered a price of $997. Meanwhile, the price was $1,399 when using Firefox or Internet Explorer.
- Another Samsung television model at Walmart.com was offered for $199 on Firefox and $168 on Chrome and Internet Explorer.
Meanwhile, Mac users could be paying a higher rate for hotel rooms on Orbitz.
According to The Wall Street Journal, Orbitz has been experimenting with a 30% premium on Mac users when they search for select hotel rooms versus PC users. That effectively works out to be around $20 to $30 more than a PC user.
When asked for explanation, Orbitz basically stated that Mac users make more money and are interested in fancier hotels. (There were no happy campers in the Apple world based on those comments!)
In my own travel buying experience, I've found that I've found that the best way to get a bargain is to click on something like you're going to purchase...and then don't buy it. When I abandon the cart, I usually get a coupon or a frantic alert about a price reduction within three hours.
Another technique is to use technology to fight back. Try installing a browser plug-in like Invisible Hand that automatically pops up an alert while you're shopping if a better price is available on another website.
Or here's an even simpler method: If you feel you've been pigeonholed as a premium customer, go into a private browsing session. That should help you see the bargains you think you're not being shown.
Finally, Amazon customers can typically get a better deal if they put something in their cart and then abandon it before the final purchase, as I mentioned earlier for the travel sites. That usually signals to Amazon that you're willing to walk away and triggers a lower price the next time you put it in your cart to checkout. Give it a try!