A different price for everyone? What is dynamic pricing and is it fair?

2024-12-25 21:47:20 source:lotradecoin search category:Stocks

Consumers love a good deal.

But what they don't like is when a price is different for each consumer, a concept known as surge, variable, or dynamic pricing.

According to a new NerdWallet study, which looks at how some Americans feel about that pricing model, 22% of respondents said they would boycott a business that uses it.

But that can be nearly impossible to do, Sara Rathner, a personal finance expert at NerdWallet, told USA TODAY. Consumers are probably already shopping at retailers that use dynamic pricing and may not be aware, she said.

Shoppers who boycott those businesses could also be missing out on deals, NerdWallet said.

What is dynamic pricing?

Dynamic, or surge, pricing is the practice of changing the cost of a product based on supply and demand.

Most consumers already know about surge pricing for ride-share services like Uber and Lyft during periods of high demand, but they may not know that they are already shopping from a growing number of businesses that utilize that same model, including Amazon and airlines, Rathner said.

Dynamic pricing has been around for a long time; we just didn't used to call it that.

For instance, consumers who buy gas for their cars have long beeen subject to a shifting tab, she said.

"That's at least one instance in your life where you are in fact subject to dynamic pricing," Rathner said. Customers have also been subject to that model when grocery prices go up after a supply-chain issue, she added.

The airline industry has also used dynamic pricing for years, said Savannah Wei Shi, an associate professor of marketing at the Leavey School of Business at Santa Clara University.

Consumers get different prices for tickets based on when they buy and the availability of seats, Shi, whose area of research focuses on consumer decision making on various digital platforms, said.

But more businesses are now following suit, said Shi.

"Nowadays when you shop online and on digital platforms such as Amazon or a lot of e-commerce websites, you actually encounter a lot of dynamic pricing," but you just may not be aware of it, Shi told USA TODAY.

When does dynamic pricing feel unfair?

Consumers need to weigh what data they are allowing businesses to collect from their purchase habits, which could result in their individual price fluctuating – either up or down – based on dynamic pricing, Shi said.

That model starts to feel unfair when the price you pay is specifically targeted or based on individualized data that has been collected on your use or your perceived need for that product, said Shi.

People are more accepting of differences in prices if it involves a group of customers instead of an individual, she said.

"At a gas station, I wouldn't feel angry if another 500 people were getting the same price as me, but I would feel really angry if I walked in and the gas station owner looked at my purchase history and the type of car I was driving and gave me a specific price just for me," Shi explained.

Shoppers can turn off third-party tracking and delete purchase histories if they want to avoid a business using that data to potentially set prices in the future, Shi said. But on the flip side, the consumers also could lose out on recommended products on sites like Amazon or lower prices based on those purchases, she said.

For instance, insurance providers offer customers a discount if the customer will agree to share driving data. The consumer needs to decide if the discount is worth the lack of privacy, she said.

There may also be certain categories where consumers are more willing to accept surge-pricing, like when ordering an Uber during times of high-traffic or demand, said Rathner.

Wendy's earlier this year announced that it would begin testing as early as next year changing the price of chicken nuggets and a chocolate frosty based on demand. But the fast-food restaurant said it changed its mind after negative reactions from the public.

And while dynamic pricing is legal, Shi said it becomes illegal when dynamic pricing is based on factors, such as race or gender.

There is also a difference between dynamic pricing and price gouging, said Rathner with NerdWallet. Price gouging can happen after natural disasters when grocery stores and gas stations significantly raise their prices when consumers have few options, she said.

Savings:Back-to-school shopping 2024 sales tax holidays: See which 17 states offer them.

Consumers want to save money with dynamic pricing

Some consumers are open to shifting prices if it will save them money. The NerdWallet study found a quarter of Americans said they would only spend money at a business that uses dynamic pricing when prices are down.

For those looking for dynamically priced deals, consumers can use apps to help them find those businesses, like a gas-price app, said Rathner.

Shoppers can also choose to travel during non-peak days or times of year to try to find savings, she said.

"Flexibility can really be your best friend," she said.

"There are moments you can vote with your wallet and make very specific purchasing decisions in a way that you can buy the things you need or want at more favorable prices," Rathner said. But "there are also moments where you might have to spend a little more. It might make you uncomoftable, but if you're able to save in other areas, if frees up more cash for those moments when you don't have as many choices."

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [email protected] or follow her on X, Facebook or Instagram @blinfisher. Sign up for our free The Daily Money newsletter, which will include consumer news on Fridays,here.

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