Why I’m Billed Less Than You, and What You Can Do About It
EXPLAIN : Dynamic pricing has been around since people started trading things, but it’s quite different on your laptop than it is on the Silk Road.
With the cost of living now the top national concern, as Consumer NZ said, and prices rising around us, what we pay and why is more interesting than ever.
Dynamic pricing really hit the nail on the head when Uber came along with its upside pricing, and there were calls for companies to be more transparent about how they charge customers.
What’s in it for us when prices are constantly changing, and is it something we should try to avoid?
* Costs are rising in all areas. How do you know if a price increase is justified?
* How you can end up paying more than other customers who shop online
* We tried to search for flights using different browsers. Here is what happened
What is dynamic pricing?
When a company adjusts its prices to change people’s behavior, that’s dynamic pricing, says Dr Martyn Gosling, senior lecturer in marketing at Victoria University of Wellington.
A low-tech example allows SuperGold cardholders to travel for free outside peak hours on public transport. The bus will still operate between 9am and 3pm, so why not try to push people around then and deter them from rush hour services?
It is also the sushi shop which lowers its prices at 4 p.m., the cinema which offers student reductions on a Tuesday evening, or the airline company which offers cheap seats during quiet hours.
At the more high-tech end of the spectrum is Uber’s price hike, which comes into effect during times of high demand. Uber says it’s to make sure people who need a ride can get one. Raising prices to see which customers stay up doesn’t hurt Uber’s bottom line either
The methods are many and varied, but the goal is to get you to change your behavior.
Who did it?
Basically everyone. If you were tempted to shop somewhere because of an incredible sale, you were subjected to a dynamic price.
“Every business has a sell – I’m sending you a signal, come get it now. It’s as old as the exchange itself,” Gosling says.
What’s in it for us?
Obviously a bargain. If you are flexible, you can take advantage of cheap things at unpopular times.
It could also mean being shown something you didn’t realize you needed. A company like Amazon, which can track what you buy and can afford algorithms, can suggest an item to you knowing that you’re more likely to pay a little more for something you’re clearly interested in.
The information may also be used to offer discounts to loyal customers, for example.
So, can anyone charge whatever they want?
Companies charge what they think people will pay. Above all, they cannot get along, which is illegal.
Raising prices above previous levels is not illegal in New Zealand. Nor is there a law here against price discrimination, which is sometimes characterized as maximum willingness to pay, says Jon Duffy, chief executive of Consumer NZ.
If they give a reason for a price, it must be accurate or it may violate the Fair Trading Act.
In the modern digital economy where there is no generally accepted price for a product because what you are charged may be different from what I have paid, this is a challenge to the Fair Trading Act which prohibits misleading representations about the price of something.
“What you are charged may be different than what I am charged due to what time I came to the website, or what the website knows about me, so this is a price evolution really interesting. Our laws don’t necessarily follow this evolution,” says Duffy.
What are the disadvantages ?
The main downside is when you have to buy something now and you have no choice.
One of the bugbears is concert tickets. In 2020, Crowded House insisted that fans who purchased tickets for a tour at Ticketmaster’s various “In Demand” prices be refunded. Fans have long complained about the outrageous prices charged for the limited supply of tickets to the shows.
The technology means there is a lack of transparency about why people are being charged a certain price, and there is also a potential power imbalance between company and consumer.
“In order to make informed decisions, consumers need clear information, and dynamic pricing prevents them from having it,” says Dr Bodo Lang, associate professor of marketing at the University of Auckland.
“It makes it a little harder to make good decisions because you have changes in information, and price is one of the most important attributes people consider when buying products and services. “
Whenever an organization reaches a certain size and market power, you have to be careful that it doesn’t engage in predatory behavior.
Lang says Uber’s price hike isn’t that much of a concern because there are alternatives such as bus, train or taxi.
The price of basic foodstuffs that people have no choice but to buy, such as groceries or fuel, is more important.
Duffy says the biggest problem for consumers sometimes is that they don’t know it’s happening. People get upset when they feel the prices are unfair or a company is making hay while the sun is shining.
“Uber is relatively clear that the surge applies, so you’re not necessarily misled,” he says.
:But there is widespread consumer dissatisfaction with the surge because it appears to be exploiting scarcity and taking advantage of the fact that people are desperate to get home after an event and there is a transport shortage.
What is not dynamic pricing?
A company charging more based on what it thinks the next shipment will cost is not the same as changing its prices to change customer behavior.
“Fuel is a good example. You’re not buying today’s fuel, you’re buying tomorrow’s fuel,” says Gosling.
“It also happens in all areas. It’s just normal inflation, it’s not dynamic pricing, it’s survival.
Companies are also changing their prices due to shortages or growing demand elsewhere. In New Zealand, rising dairy and meat prices are causing anger because of the volumes we produce, but what we pay is not based on what we can buy in New Zealand, but rather on the international price.
How do you get around it?
Many people won’t even know it’s happening because their visit to the website or platform is a one-time thing, so there’s no point of comparison.
You can override it in flight if you change the time you want to fly.
You can try deleting cookies from your computer and opening a tab in an incognito window to see if a website offers you a different price.
Plus, if you don’t buy a product the first time you look at it online, you may get a discount, Lang says.
Retailers are very aware that many online shopping journeys are abandoned when products are already in the cart.
“So the question for online retailers is how do you close the sale? As we’ve known from decades of marketing research, you give people an incentive, and an incentive is “hey, you’ve already looked at this shirt, now it’s 10% cheaper”.