Reasons Consumers Dislike Dynamic Pricing

When Delta’s CEO confirmed they’re exploring AI-powered personalized pricing, the backlash was swift. And familiar. Remember when Wendy’s floated dynamic pricing last year? Same story. I ran a study with a nationally representative sample of 284 consumers comparing personalized airline pricing to traditional “rate-fenced” pricing. The results were clear—and a bit brutal. Consumers said they trusted the company less, felt the pricing was less fair, and sensed they had little control over what they were being charged. Not surprisingly, they were also less likely to say they’d book again. One respondent put it this way: “At least with regular airfare, I know the rules. Here, I’m just stuck with whatever they feed me.” It wasn’t so much the price that bothered them—it was the sense that they’d been cut out of the conversation. #RevenueManagement #PricingStrategy #AirlineIndustry #Hospitality #CustomerExperience

Dynamic pricing on the personal level in ecommerce is something that looks smart, but is actually really dumb. Once customers catch on to pricing being gamed to squeeze them out of more profit per order, trust is completely eroded. Then you will see the rise of ad blocker-style extensions and VPNs to prevent arbitrary price gouging based on behavior, location, and data. And you will also the rise of brands that market themselves as having no dynamic pricing, compared to their competitors. And customers blasting you in public forums, “I was sitting next to my friend and we had completely different pricing.” Lastly it will just send a higher percentage of shoppers to marketplaces instead of your DTC site.

Personalized pricing has been tried and abandoned many times over the years. Recently, the idea was back in the news when Delta announced its plans to use customer data to offer personalized prices. Typically, consumers react negatively to personalized pricing because they perceive it as unfair. These concerns about fairness are also at the center of a legal battle in New York, where the National Retail Federation (NRF) is suing the state over a new law that "requires a warning for algorithmic pricing." Having studied fairness during my doctoral studies, I don't think these attempts at personalized pricing will last unless consumer perception radically changes. Interestingly, personalized promotions are much better accepted by consumers, even though they can lead to the same outcome. See https://lnkd.in/es52Rf5b for more information. #pricing #pricingstrategy #algorithmicpricing