Bad news: Surge pricing is here to stay

More industries are using AI to change prices based on supply and demand.

You know the drill: You’re huddled under an awning, caught in a torrential downpour, and open your Uber app to see that a ride home will cost 4x its normal price.

Four glasses of beer with barcode labels on them, increasing in size against an orange background.

The same goes for booking hotels or flights last minute or during holidays — as demand goes up, so do the prices.

According to the Financial Times, surge pricing (also known as “dynamic” pricing”) is becoming more popular across industries:

  • Stonegate Group, Britain’s largest pub company, recently introduced surge pricing at ~800 of its pubs, raising beer prices on weekends and evenings.
  • Ticketmaster’s pricing has sent many fans, faced with concert tickets selling for 2x their face value, into an uproar.
  • Amazon uses real-time data to track demand and changes product prices every 10 minutes on average.

And the only thing holding physical stores back from using dynamic pricing is the time-consuming task of updating price stickers — but tech is changing that.

Walmart is bringing digital price tags into 500 of its stores, and French supermarket chain Carrefour has been using electronic shelf labels since 2014.

If this makes you mad…

… blame AI. More companies are adopting dynamic pricing tactics as machine learning technology becomes more accessible and affordable.

And there are services devoted to making surge pricing easier for brands, such as Quicklizard, whose dynamic pricing tools are used by companies like Sephora and Ikea.

Shocking to absolutely no one…

… Consumers don’t like this. Many of us have a thing against, y’know, spending more money:

  • In the UK, 71% of music fans polled last year said they opposed surge pricing for concerts.
  • In the US, 52% of surveyed consumers said they think dynamic pricing in restaurants is equivalent to price gouging.

Some research even suggests that pricing algorithms can harm consumers.

How businesses will handle the pushback remains to be seen. But, in the demure words of Ticketmaster’s ex-CEO Fred Rosen: “It’s called the ticket business, it’s not called the ticket fan club.”

Topics: Economics

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