Dynamic Pricing- (un)favorable price competition?
If you want to purchase a microwave at Amazon, it is sometimes better to wait a moment. The price of the microwave can fluctuate several times per day, dependent on the prices at competitors. This principle is called Dynamic Pricing. Amazon is the uncrowned king of this pricing technique. More and more retailers are following this strategy to raise the margins. But there are a few objections: Is it ethical and is this strategy not an invasion of the privacy of the customers?
These days, more and more retailers are experimenting with dynamic pricing. Dynamic pricing has two important advantages: higher revenue and higher margins. There are four different forms of dynamic pricing:
- Dynamic pricing based on competitors. When one of the companies increase or decrease their prices, the other companies will follow.
- Dynamic pricing based on demand en supply. On busy moments, the price will increase and on quiet moments, the price will decrease.
- Dynamic pricing based on location and behavior. When a customer lives close at a competitor, or when a customer has watched the website of a competitor, the price will decrease. This form of dynamic pricing will raise questions at the consumers. On one side, people do not want the feeling to be disadvantaged on collected personal data. At the other side, the question is: it ethical to offer a different price for a product to two customers, who are buying that product on the same moment?
- Dynamic pricing based on customer profile. Information from the customer profile will be used to calculate the optimal selling price. The price will be calculated on several factors like brand loyalty and price sensitivity. There are a also a lot of concerns at this form of dynamic pricing because there is discrimination between customers based on information about that customers.
Dynamic pricing offers retailers the opportunity to increase the grip on their margins and revenues. But the more personal data from the customers is used, the more it encounter objections. What do you think? Is it ethical for companies like Amazon, to use personal data to determine different selling prices between customers?