Dynamic pricing

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Dynamic pricing is an umbrella term, which refers to a pricing strategy of modifying the price of a product or service according to market demands and/or consumer-identifying information. This definition includes surge pricing, surveillance pricing, demand pricing, time-based pricing and variable pricing.

How it works

Dynamic pricing involves setting individual-consumer prices and dynamically changing them both over time and personally depending on individual consumer information, all of which is done by algorithms. To make it more effective, the customer is given real-time content recommendation based on their history of personal information. The algorithms can also detect if a customer is disengaging, which then causes dynamic pricing and communications to intervene.

Why it is a problem

Price discrimination

According to U.S. law, "Price discrimination is illegal if it is based on impermissible factors like race, gender, religion, or nationality. So stores can't charge men and women different prices for the same product."

Privacy concerns in digital marketing

Dynamic pricing involves highly personal and identifying consumer data for individual price determination, which raises serious concerns about privacy. The problem stems from the collection of fine-grained consumer behavior data, as well as the lack of transparency around that data collection. The driving force for algorithmic pricing models, especially personalized pricing, is tracking cookies. This data, which includes browsing activity such as clicks, and past page visits, as well as personal information entered on the site, can be used to finely infer the tastes, income, health etc. of the individual.

Many consumers are unaware that this information is even being collected, and merchants do not have to ask explicit consent to use tracking cookies for pricing purposes. The onus is left to the consumer to protect themselves if they do not want to be targeted for personalized marketing. This data collection creates a massive informational advantage for companies, which may offset the price advantage that a consumer can gain due to the ease of searching online. It also limits a consumer’s ability to plan future purchases, as prices constantly fluctuate. These ethically “bad” features of algorithmic pricing may limit the economic freedom of the consumer, even if the moral “goods” tend to enable more choices.

Examples

Some examples of Dynamic pricing include:

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