After the Oasis Ticketmaster debacle the term dynamic pricing has surged into recent mass consciousness.
New to some but not in retail where the airline industry innovated in the early 80s dynamic pricing is now common using real time technology across hospitality, e-commerce and ride sharing apps. Other sectors are experimenting with it including fashion and cinema.
Dynamic pricing is the strategy of adjusting prices in real time in response to market forces like supply and demand, cost fluctuation, competitor pricing, and consumer buying behaviour. Unlike fixed pricing models, dynamic prices are constantly in flux, driven by complex pricing rules or machine learning algorithms that take in large data sets from historical sales and competitor price data to arrive at an appropriate price point for any number of product and customer segments.
The internet, tech and now AI have simply made dynamic pricing more effective, widespread and pervasive, accelerating market forces to get sellers the best price.
Playing off scarcity and the need to react immediately, people can be encouraged to pay way above the odds for something they really want or even buying something they don’t for fear of missing out..
Aside from the moral issue of cynically inflating prices, the more practical benefit is simply optimising yield by putting the right price to the right person at the right time and place. Another expression of this would be relevance.
In OOH terms, contextual relevance and real time data are critical for those of us working in dynamic advertising content and pDOOH, but we’ll come back to that..
Importance of scarcity to dynamic pricing
There’s no doubt that scarcity plays a huge role in driving demand and the ability of dynamic prices exploit that demand to maximise prices. Inevitably there’s a limit in terms of what consumers can and will pay and the potential negative PR from exploitative practices. Scarcity plays an important role without dynamic pricing as popular products sell fast, especially if they’re on offer / heavily promoted and people want what’s popular often inflating demand with herd mentality. People get a kick out of the immediacy of buying a product when they want it and even more if it’s scarce.
Dynamic pricing on today’s high streets
The high street has not been as quick as e-commerce to adapt to the opportunity of real time dynamic pricing as consumer loyalty is at serious risk if they get it wrong. Instead they’ve focused on simpler to understand price matching and low price guarantees. Loyalty schemes offer two tiered pricing designed to reward members with heavily discounted products. In store digital signage and electronic labelling systems are now commonplace so physical shops have the ability to change prices in real time if they wanted. Most of the innovation there seems to be in dynamic menu boards reacting to time, weather and stock to optimise sales, Mcdonald's USA is Seeing a 3% - 3.5% sales bump through dynamic digital menu displays.
Most believe that dynamic pricing is coming to the high street, especially the incredibly competitive grocery sector where there are challenges of moving shoppers from peak to off peak to optimise store traffic across the day. Making items more expensive at peak incentivises shoppers to avoid the lunchtime rush unless it’s essential and they are a lunch time shopper. Peak pricing changed our behaviour in the telecom industry 50 years ago and still does in the energy sector with those chasing cheaper power doing their washing later at night.
Using your mobile while physical shopping put the consumer in control
Having a mobile in your hand while you physically shop has changed the power dynamic exponentially with consumers able to check comparison prices or available competitor products at a touch of a button. Why walk home with bags when e-commerce delivery can be seamless and fast. Come in store to research, buy online for a better deal.
However, people do like to bring shopping home and have fixed prices so they can work to a budget and with over 75% of purchases still made physically in the UK, bricks and mortar retailers need to be incredibly careful with their pricing strategies or risk customer loyalty. Would you pay more on the day for a scarce item about to go out of stock? or would you take your purchase elsewhere?
As the high street evolves to dynamic pricing pDOOH is best placed to promote changes locally
Programmatic DOOH is undoubtedly the best place medium in proximity to physical purchase for mass awareness to promote changes in product price or availability. Advertisers can benefit from the flexibility of the medium to only buy media when an in demand product is available or a price changes hyper locally.
With the power of retail media data we know what products index highest by time of day / week and postcode at an individual store level. This enables advertisers to be incredibly targeted even with a broadcast medium. Store data tells us that this geographic over indexes for indulgence lovers or bargain seekers so we can be confident with offers targeting commuters on their way home with a 2-for-1 ice cream offer. While we’re not all impulse purchasers the same ad works both on a brand and performance level depending on where you are in the purchase funnel. If I’m not in the market for ice cream right now I still notice the ad as it’s relevant and remember the product and retailer for the future.
Research consistently proves that consumers notice dynamic / live / contextually relevant ads more than their linear equivalent. While these metrics are improved if ads become even more time sensitive with countdowns for product drops, live stock and price changes. With live footfall data also in the tool kit stores can react in real time to market conditions and access media tactically to support them when they need it and turn it off when they don’t automatically. Could we see a time when discounting is made in real time locally to ensure they’re winning where and when they need to? The technology and media is certainly there already.
See our Boots Christmas 2022 Case Study for more.
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