British pub chain Stonegate introduced dynamic pricing in September. These prices depend on the size of the order, or in this case: drinks get more expensive the more crowded it gets. In the tourism sector, dynamic pricing with high and low seasons is already well established. Can we also expect this in other sectors?
We think it’s normal to pay more for a hotel room or plane ticket during periods when more people travel, but where the system has already moved to other sectors, reactions have been mixed. However, dynamic prices are on the rise, because the increasingly digital world makes this possible.
Ski passes, Uber rides, and concert tickets
How exactly does it work? The algorithm determines the factors that influence the price – so that the business owner does not have to do this ten times a week. For example, the price of a ski pass increasingly depends on factors such as weather conditions, snowfall and demand for passes. It will cost more to ride an Uber on Friday and Saturday evenings, during rush hour and at major events in the area. New Yorkers were not happy in September when prices also rose during heavy rains.
Only at this very moment will you see whether you will pay the base price, or perhaps three or four times that amount. This was, for example, the case at Beyoncé’s concert in Brussels.
Ticket seller Ticketmaster adjusts its prices – now also in Belgium – based on how popular tickets are for a particular show. As a fan of an artist, you never know in advance how much you will pay for your concert ticket. Only at this very moment will you see whether you will pay the base price, or perhaps three or four times that amount. This was, for example, the case at Beyoncé’s concert in Brussels. Dynamic pricing may be met with a great deal of skepticism. The criticism is that only the rich can afford a ticket anymore. An artist who chooses to work with the system will see his profit margin grow significantly.
In the restaurant industry
Dynamic pricing also occurs here and there in the catering industry. Sometimes using complex algorithms that look at factors like nice weather, nearby events and at what price the competition offers their drinks, but sometimes simply by relying on how busy they typically are during certain periods. When there are many customers, you will pay a little more for what you eat or drink than you would at a quieter time.
Stonegate Group, the UK’s largest pub chain with 4,500 establishments, has made each pint 20p – equivalent to 23 cents – more expensive during peak times in many of its pubs. This additional revenue will be necessary to cover the higher costs during those hours, such as increasing the number of employees in the company, but also for additional security and cleaning. As a result, 800 pubs now have an “unhappy hour”: a period in which they pay more than usual. Customers clearly expressed their dissatisfaction on social media. Dynamic pricing is therefore not in line with what everyone considers the “normal” price of a product.
The system can provide an answer to current challenges in the hospitality sector, such as staff shortages and high raw material prices.
Will we soon find it more normal to pay more for a pint on a summer afternoon than on a cold Monday evening? Technology is already making this possible – and perhaps even more so for businesses that now allow all of their customers to scan QR codes to order something. There are currently few examples of companies operating dynamic pricing, but in some quarters it appears that the system could provide an answer to current challenges in the hospitality sector, such as staff shortages and high raw material prices.
What would this be like? Star Next restaurant in Chicago offers an example: for the menu you pay at least $255 on Saturday and Sunday evenings, and $10 (€9.38) less on the other evenings. The menu of The Harbor Club, which includes several restaurants in major Dutch cities, is 10 to 20 percent cheaper on Mondays to Wednesdays and some Sundays than on other days. It is up to the client to decide what is left for the best date.
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