Persistent Pain of Dynamic Pricing

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Everyday groceries are what I carried for my friends in London every time I visited them from my small town outside the city limits of London. Cost of the same product used to be substantially lower in my small town in the same superstores. About two decades ago, this was my introduction to dynamic pricing, which has different price points for different customers at different times.

Pain of Dynamic PricingAround the same time, back home, Air Deccan introduced us to the idea of Re 1/- flight tickets. People spent hours on their website hoping to get a nearly free ticket. This also meant that last-minute or regular ticket prices went up substantially. The average prices would more or less stay the same, but the differential between the lowest and highest widened. Most airlines soon followed suit, and we lost control of our flying budgets. Till this point, I knew the airfare between two cities and could plan my travel budget accordingly. To add to the chaos, the ticket now comes with so many charges and optional things to buy, complicating my experience of simply flying to reach my destination. Most people are unaware of using browser cookies to change prices dynamically based on search.

The advent of e-commerce portals offered a lot of discounts to inculcate a habit of buying online, fuelled by investor money. They did succeed to a large extent. In the process, we lost the concept of MRP. Now to buy a mundane item, we surf multiple websites, comparing prices that include variables like delivery cost or membership benefits and, of course, the price at our neighborhood store. Not to forget the chaos when the big festival sales happen.

Online travel agents, on the one hand, brought all possible hotels to our fingertips, but on the other, as a middleman, they took away any control that we had. Pre-payment means accepting whatever level of service or facilities is offered at the property. The risk of non or sub-par delivery is completely with the customer. Not just us, but even hotels lost control over what flexibility they had earlier. Today, typically, a direct booking with the hotel is far costlier than going through OTAs. Once the payment is received, the hotel has the least incentive to serve the random customer they have received, for they assume the customer is here because of the low price. And yes, comparing prices across platforms or discovering a lower price as soon as you have booked is an exhausting process.

Then there are seasonal price spikes like everything in Goa in the last week of December or surge prices on our Taxi Apps. The price points change by the minute based on the demand. While the seller makes a quick buck, the customer feels cheated and is left with a bad taste.

For essential items like bottled water, where MRP is clearly mentioned, we were asked to pay multiples of it at airports and high-end restaurants. Thankfully, the government stepped in and made it mandatory to provide free and safe drinking water at public outlets. You may still struggle to find a jug with un-inviting glasses in the corner at your favorite multiplex, but it is there. It is not uncommon for all the water fountains to be out of order at airports forcing us to buy water bottles with prices decided by the respective outlets.

What disappointed me most was the dynamic pricing by Indian Railways. Trains in India are used by large sections of the Indian population for essential travel. You invariably book the tickets in advance, and you, of course, pay for the ticket in advance. What is the need to complicate the pricing just because some algorithm allows you to do it easily or do you want to compete with the airlines which are still elitist in comparison?

As a customer or consumer, I find tracking and planning my expenses extremely taxing. Even tiered variable pricing is acceptable; it at least allows me to plan in advance. More importantly, all these entities discard the fact that they may become inaccessible during emergencies or critical times for a large section of society.

I checked with my social media followers, and more than 75% of people preferred fixed pricing with some tiers of variable pricing once in a while to include either peak demand or sales during low one.

From the business’s perspective, fixed pricing would keep their systems simple and revenues predictable. You can let go of some of your yield managers and have far fewer processes as you sell a standard product or service at a standard price. The customers like me would love predictability, dependability and a complication-free experience.

At the same time, I wonder what brand managers think of dynamic pricing. It dilutes the brand loyalty customers may have for them. The whole game becomes about pricing, so a 5-star property may be found clubbed together with a lodge solely based on the price determined by an algorithm. When they show a price point, I understand that costs may factor in the occupancy rates or shelf lives. Still, whatever you have spent building a brand is lost in the pure play price war. Your staff has no incentive to delight the customer that does not promise repeat business.

Most research papers favor dynamic pricing, but that is understandable in the age of software enabling it in a jiffy for you.

Finally, the dynamic pricing model copied from the capitalist West must factor into value-conscious Indian society. Assuming that we will pay higher prices once we get used to a service may not be true. And yes, negotiation, haggling and bargaining are something we enjoy, do not deny us that pleasure.

First Published in The New Indian Express on Nov 20, 2022.

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