The Effects of Dynamic Pricing

The Effects of Dynamic Pricing

Newsline raises the question will consumers punish brands that introduce dynamic pricing? They see one of Europes largest cinema chains Odeon announcing their innovative new pricing plan. Odeon are planning on charging an extra £1 to watch the latest blockbusters, compared to their price for smaller/older films. They join a long line of brands who have introduced dynamic pricing.

At first this seems quite uncontroversial - it's a simple case of supply and demand in action. However, consumers don't necessarily react to pricing changes in a reasoned manner. They are far more emotional than the rational caricature presumed by economists. People do not behave in the rational manner classical economics predicts and accept low offers. Most receivers reject offers of less than 30%. Receivers are prepared to make an economic sacrifice in order to punish those who transgress their notions of fairness. The following can help you learn about the effects:

  • A minor price rise may result into unhappy customers due to the pricing being perceived as unfair. Coco Cola certainly learned this the hard way when they received a huge amount of negative publicity after they dabbled with the idea of vending machines which charged more on a hot day.
  • Consumers perception of fairness are fluid. Dynamic pricing seems to become more acceptable over time as consumers become accustomed to it and begin thinking it is the 'natural' state of the market.

It will be interesting to see whether their pricing model will be accepted. Would you pay more for a new film and less for an older film?

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