As a vivid discussion about the fairness of tax brackets goes on long enough, one person will inevitably bring up the Argumentum Ad Supermarket. Because „in the supermarket, everyone pays the same for a bread”. Although this is true right now, it’s not that crazy to expect things to change. Welcome to the world of dynamic pricing.
Dynamic pricing is the mechanism of ‘determining a product’s value in commercial transactions in a fluid manner depending on current market conditions’. This sounds like a regular stock market, but don’t get yourself tricked: virtually everything could get priced dynamically, and the airline and hotel industry are already doing this.
When HBR’s Rafi Mohammed wanted to book a hotel in New York, he found out the hard way. Looking at the same hotels through the website and the mobile app of Orbitz, he was presented different prices. Double checking with a friend sitting next to him, he learned to his shock that she saw an entirely different price.
Asking Orbitz for an explanation, he was told that they are testing prices, but that the (type of) device is not a part of the equation. I have my doubts about that explanation. When setting a price, it’s crucial to know what someone is willing to pay for a product or service. If you know that iPhone users are willing to pay more, why wouldn’t you use that information?
Already in 1997, the magazine Electric Light & Power published a frequently cited article which showed that dynamic pricing, if done right, boosts profits between 8 and 25 percent. Businesses have been using this knowledge in ‘tailor made’ price quotes for each other, and now the airline and hotel industry are doing the same for consumers. So, again: why wouldn’t you?
The honest answer is most probably: of course you should, but it’s still controversial so controversial that it’s better to not be too transparent. People don’t like to know they’re fooled. Hence the official statement of Orbitz, denying everything. I recently stumbled upon an even more brilliant communication strategy by Icelandair, that launched the campaign ‘pack less, pay less’.
The idea is that they are rewarding passengers that don’t take checked luggage with a lower price. „We are widening our product options and meeting the various needs of our passengers”, the company announced. Now, ask yourself: which needs are they talking about? And how do you know you’re actually paying less?
The answer to the first question: none whatsoever, because no one ‘needs’ to fly without checked luggage. The answer to the latter: you really can’t. Since Icelandair, like all their competitors, uses dynamic pricing, they could have as well communicated that from now on checked luggage is not free of charge anymore.
That’s not a shame, since most airlines charge for checked luggage, some even for the carry-on type. But it is something to think about with a sense of nostalgia when we start finding out that supermarkets charge your neighbour a lower price than you for the exact same bread.
Veranika Parmon
