Inflation is being exacerbated by surge pricing, forcing consumers to pay more for goods or services that are already overpriced.
The issue was recently covered by the Financial Times, which interviewed bar-goers at a local pub where the owner recently introduced “dynamic pricing” making beer more expensive on evenings and weekends.
From the Financial Times:
For drinkers at the Coach House in central London on a busy work night this week, there was an uncomfortable piece of news to digest: the price of Britain’s favourite alcoholic beverage had just gone up — again.
Stonegate, Britain’s biggest pub company which runs the Coach House, has announced it will charge pubgoers 20p extra for a pint of beer on busy evenings and weekends. It is part of what it called a new “dynamic pricing” policy in some of its venues.
This has come much to the annoyance of some of its regulars. “It’s not right; we’re being done over enough on beer as it is,” says Adrian, a 37-year-old brand marketing manager, who has nipped into the pub near Piccadilly Circus after work. Sipping a £6.25 pint of Heineken, he admits that after the fuzziness of a few more drinks he might not even notice the price increase as the pub fills up.
“It just fleeces people trying to enjoy themselves,” he adds.
Dynamic pricing works by allowing an AI algorithm to adjust prices for goods or services based on numerous factors, for example making concert ticket prices higher or lower depending on demand, or timing.
While businesses will promote dynamic pricing as a net positive for consumers, who may benefit by taking advantage of deals during certain times, it actually is more focused on increasing profit margins.
Discussing surge pricing, revenue expert Robert Cross, who helped create the dynamic pricing model for Delta Airlines, says, “It will eventually be everywhere.”
“If you’re a business, it’s irresistible because it will improve your margins and it’s in the consumer’s best interests too,” Cross said. “Anywhere there is a mismatch between what a customer is willing to pay and the actual price is ripe for dynamic pricing.”
The article goes on to explain the “flex” pricing model typically employed by airlines, hotels and ride share apps is creeping into other parts of everyday life, including grocery and department stores, where fixed price tags are being replaced by digital labels.
For many retailers with a large bricks-and-mortar estate, dynamic pricing is still in its infancy, as it involves having to physically change labels, a costly endeavour. But the uptake of so-called electronic shelf labels, offering the ability to rapidly update prices, is spreading. Walmart is installing digital labels in 500 of its stores and France’s Carrefour has been using them for years.
With inflation already impacting consumers from all angles, surge pricing unfortunately seems poised to add yet another financial burden, as AI systems gain greater control over determining pricing strategies.
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