How to Make Dynamic Pricing Work for You

We’ve all been there: the cost of a ride share can jump seemingly by the hour. The great deal on airfare you found on Monday is gone by Tuesday. That perfect birthday present you found for your nephew online didn’t look as good when the price suddenly increased.

Price fluctuations may or may not land on your radar but they’re happening all around you, every day. And there’s a name for it.

It’s called dynamic pricing, real-time, variable or surge pricing. Dynamic pricing is when companies change prices based on various factors. It may feel new but businesses have been using this to maximize profits for quite some time.

“Airlines have been doing it since 1978. So it’s not that new, but dynamic pricing definitely became much more prevalent since American Airlines introduced it,” said Senthil Veeraraghavan a professor at The Wharton School of the University of Pennsylvania researching operational implications of consumer reactions to surge pricing.

Companies are using technology and analytics to track demand and change prices at a rapid clip. Some might even be charging you more than another shopper at the same time, whether due to browsing from an app or being logged in, a practice known as differential or personalized pricing.

But there’s a way to make the system work for you.

Here’s a look at some industries that have tried or are investigating this pricing technique, and what you can do to save more.

 

Sporting events 

The San Francisco Giants were the first professional sports team to experiment with surge pricing when they rolled it out in 2009. It’s a practice now common amongst most Major League Baseball teams.

MLB teams may charge more when popular opponents come to town or when the team’s ace pitcher is scheduled to take the mound, and prices may drop if bad weather is predicted or if there are empty seats as game day approaches.

After the MLB tried their hand at surge pricing, teams in the National Basketball Association and the National Hockey League dipped their toes in as well. The National Football League took longer to get in the game, but in 2015, when the NFL first permitted dynamic pricing, a quarter of professional football teams were raising or lowering ticket prices based on demand.

However, teams have moved cautiously, wary of upsetting their fan base. After all, unlike airline tickets or paper towels, which might be purchased because the consumer needs them, sports tickets are usually purchased out of love for the team.

How to save: Try waiting until the last minute. For baseball, SeatGeek data shows that fans pay less if they buy their tickets the week of the game. 

Arts & Entertainment

Some theaters have used a simple form of dynamic pricing for years: selling discounted tickets at booths or at the box office on the day of a performance. More recently, some theaters, ballets and other performing arts companies have taken it further, raising prices or offering discounts based on changes to demand throughout the season. For instance, Center Theater Group in Los Angeles charged $120 for a seat at a performance toward the beginning of a recent season. But after the show proved popular, they charged $200 for the same seat later in the season.

At the movies, this year Regal Entertainment ran a test of dynamic pricing, experimenting with charging more for hit movies and less for unpopular ones. If this takes hold, it will actually be a back-to-the-future move, because until the 1970s, theaters routinely varied prices based on both movie popularity and time of day.

How to save: If you’re a culture vulture, sign up for the mailing lists for all of your preferred venues. If they offer last-minute discounts, you may be the first to know.

Restaurants

Traditionally, pricing changes at restaurants took the form of early bird specials or the annual “restaurant week” that many cities now pitch each year. As restaurants collect more customer data through their loyalty programs, they may be able to leverage that information into surge pricing programs where prices change regularly based on demand.

Some high-end restaurants are experimenting with the tactic. Chicago’s top eateries, Alinea and sister restaurant Next, which always charge a set price for a meal, charge more for the most popular time slots and charge less during bad weather. Alinea even once used Twitter to notify potential diners of a special during the Super Bowl.

There is an effort to use technology to bring dynamic pricing to a wider range of restaurants, but the business model is still in its early stages. For example, the app TasteBud is helping restaurants offer time-sensitive discounts to fill empty seats, but it is so far only available in Austin and two other cities. Another app, Requested, tried to operate on a Priceline model, allowing customers to ask restaurant owners for discounts, with the theory that restaurants could use it to increase traffic during slow times. However, Requested eventually discontinued the service.

How to save: Watch for specials, especially during traditionally slow months such as September. Follow your favorite restaurants on social media to find out about flash deals. Download the TasteBud app if it becomes available in your town.

“If the current price is close enough to the price that you have purchased in the past, buy it"

Attractions

For years it’s been possible to save money at zoos, theme parks and ski resorts by buying tickets in advance, or by taking advantage of weekday specials. Now some attractions are also adjusting their prices based on anticipated demand. Disneyland, for example, charged a whopping $299 per person to attend the opening day of the new Pixar Pier area at California Adventure, which is nearly three times the regular ticket price.

If you go to the web site of the Indianapolis Zoo to buy a ticket, you’ll see a dial showing predicted attendance for your day of choice, and a price that varies from $8 to $30. The zoo uses software to predict the most popular days based on historical attendance, then raises prices slightly as the date of the ticket approaches.

According to Dennis Woerner, the zoo’s director of marketing and public relations, when the zoo decided to follow the lead of baseball and concert venues to adopt dynamic pricing, it was, first and foremost, as a crowd control method. In 2005, the zoo had debuted a dolphin exhibit that attracted record attendance.

“We had about 20-plus days when we had over 10,000 people in the zoo on a specific day during the summer,” Woerner said. “That wasn’t a good experience.”

When the zoo prepared to open an orangutan exhibit in 2014, they expected a similar attendance boost. Knowing they had to change something, they implemented the dynamic pricing system, offering guests the opportunity to visit for lower prices on less popular days. It worked.

“Using dynamic pricing we were able to shift attendance from weekends to weekdays, and earlier or later in the year. We increased our total attendance by 250,000, yet we only had five days over that 10,000 mark,” Woerner said. “We were able to spread it out.”

The Indianapolis Zoo has also reaped a financial benefit. Woerner estimates that dynamic pricing has increased revenue by 5% to 8%.

How to save: On social media, follow services that spread the word about discounts, like Recreation Connection. If you know the venue you want to visit uses dynamic pricing, plan your trip for a slow day such as a Wednesday, or go during the off season when prices may be lower.

Retail 

Historically, changes in prices took the form of weekly discounts or clearance markdowns to unload the last of the beach balls or make room for the incoming Halloween decorations. But it was limited: it didn’t make a lot of sense for stores to pay staff to go from shelf to shelf changing prices more than once a week.

Online merchants can change prices easily. And they do. In fact, Amazon changes its prices so frequently that a web site called Cammelcamelcamel exists just to track and monitor them.

Retailers have a powerful incentive to do this: One pricing study found that by keeping their prices elastic, retailers were able to improve their revenue by 10% to 20% in certain product categories.

Kyle James, founder of online deal site Rather-Be-Shopping, first noticed dynamic pricing in retail about a decade ago, and routinely sees it not just on Amazon but also on the online storefronts of Home Depot, Lowe’s and Staples. Not only do retailers vary prices based on demand, they’ll also try to charge different prices to different customers, based on the customer’s profile, James said.

“Dynamic pricing is used by retailers to get you to spend what they think you can afford,” he said.

How to save: Consumer Reports recommends signing up for a price tracking service, which alerts you when the price on an item you’re watching changes. Another strategy is to see if your credit card offers price protection, meaning that if the price of something you bought goes down within a certain time window; you may be able to request a refund for the difference. Or, you can try the “watch and wait” approach.

If you suspect you’re seeing a higher price than other shoppers based on your shopping history, James recommends disabling cookies on your Internet browser and trying again, or checking the price via both your mobile phone and computer to see if there is a difference. Another trick to avoid getting sized up as a high roller, suggested by Consumer Reports, is to try entering various zip codes to see if the price changes.

In the end, experts agree, the important thing is to do your research and know approximately how much you are willing to pay. That way, even if you don’t have time to do a ton of price tracking or comparing, you can buy with confidence.

“If the current price is close enough to the price that you have purchased in the past, buy it,” Veeraraghavan advised.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.