Before two weeks ago, I hadn't given the dynamic pricing of consumer goods and services much thought. I suspect that's mostly because it doesn't exist for the most part outside of travel-related products such as airfare. However, I was in Frankfurt two weeks ago and met the owner of two convenience stores which run a dynamic pricing model, and I was intrigued.
The stores are no bigger than walk-in closets really, but they do a fair amount of business and they're highly profitable. The one thing that sets them apart from any other retail store is that there are no prices to be found on anything - you have to take an item to the register to see how much it costs. And that candy bar you're paying $1 for today might have been $1.04 yesterday and might be $.98 tomorrow.
Then lo and behold I find this report yesterday about dynamic pricing in a bar - a bar I actually used to frequent under previous ownership. And their prices change from moment to moment. So that Sam Adams you bought for $4 a half hour ago might now be $3.75.
I thought the notion was cool and curious so I tweeted out the link. A couple hours later I got a PM from WSO user bullbythehorns. Apparently there's a bar in Barcelona called Bar Dow Jones that's been doing it for years, with a live ticker board no less. So you can see that Bloody Mary's are UP on the day, but Jaeger Bombs are UNCH.
When you think about it, this is a pretty effective inventory management method. The way it worked for the convenience stores in Frankfurt is that when a new shipment would come in, the existing stock would be averaged against the cost of the new stock to reach an overall average COGS, and then the computer would just apply a uniform 40% markup to the new average.
When you apply the same theory to a bar, dynamic pricing can clear out aging stock (especially liqueurs which are prone to drawing fruit flies and the like if they sit on the shelf for too long) and can actually encourage patrons to drink even more. Lord knows I'd pound my drinks faster if I saw the price of Jameson or Gosling's dropping.
So I'm wondering what you guys think? Are you hung up on seeing a price tag and knowing that prices are essentially static? Or would you prefer a dynamic pricing model which might work for you or against you? With the advent of Google Wallet and whatever Apple's answer to it will be, we might see dynamic pricing go hand-in-hand with the new payment technology.
Is it a good deal for consumers or just a gimmick?
Can you imagine the potential for drinking games if there was a live ticker price on every single drink at the bar?
There is a bar in NYC that has a live ticker on every drink at the bar.
While I do think its a cool concept because of being a financial nerd, I also do not think it will work well in a widespread implementation. I'd be pissed if I bought a beer for $4 then saw the price drop because then you feel like you just wasted some amount of money. Giving an overall negative feeling, and experience.
Pretty cool. I think implementing it at bars would work great because it would attract people for both reasons - deals and the gimmick/experience.
That said, I don't think it would work well at supermarkets (if the price wasn't readily available). Overall, the consumer would get frustrated and feel "nickeled and dimed." It could work if the fluctuations were very small.
The convenience store owner did tell me that the lack of prices on the products and shelves was the most common customer complaint.
I'm not sure if this would be successful...
It's an interesting concept. While I think it is mostly a gimmick; I wonder if it has a real chance of catching on in the consumer market, as many segments in the B2B marketplace operate in this fashion. It could improve profitability and cost savings could be passed on to the consumers I presume. Amazon runs on a similar system - albeit not as dynamic.
The Brew Exchange in Austin has the same concept. Haven't given it a visit yet..... yet.
theres a bar in Barcelona called the Dow Jones that acts like a stock exchange in a way. Popular drinks prices rise, those that nobody is drinking go up. Once they hit a certain sales point, the market crashes for a bit, where everything is much cheaper. cool concept
How pre-WWI.
There's a place o'er here that does that shit, but with burgers. They start out the day real cheap, and then get more expensive depending on the time. Little bit gimmicky, but, y'know... makes things more efficient, right? People who have more time than money can go there at off-peak times.
These guys - they're market-makers, they are.
Anyone know the name of the bar in NYC with dynamic pricing? I'm curious to check it out. It sounds like an intersting concept, but I can't imagine if every single price fluctuated every second...it makes any type of planning impossible. Imagine a friendship/relationship where the person, on a moment to moment basis, had widely varying levels of interaction with you: their erratic pattern may be interesting for a little while, but you'd drop them from any type of long term planning because you have no idea what they're going to do next. It's the same thing with prices and why options are such a big deal. Pure market forces are complete anarchy and are only a component of a well functioning system: market fundametalism is a myopic perspective because outside of trading, pricing is just one of many facets in running a business.
It's a novelty, but if I had to re-price each round of drinks on a Friday night at full tilt, I'd go out of my mind. Do you have any idea how much stuff there is to keep track of without adding to it? Also, the regular customers bitched like fucking girls when we raised the price of a beer $0.25 during the recession, I don't even want to deal with wide price swings. This would piss me off more than someone dicking around with the speed rack. Plus, when the price went down for a few minutes, every asshole would want a refill at the same time and there's no guarantee that I'd get to them before it went back up...and taking options orders in the middle of a party would just gum up the whole system.
Prefixed prices would actually be great for a pre-planned party, but what about a bar crawl? Could I start undercutting the guy next door or comping the difference to keep the crowd in? And would they even care? How many of you guys stop giving a shit what things cost after round five? Do I WANT my customers keeping track of their tab? A tab dispute at 1AM with a drunk fucker already sucks...now I'd have to reconcile it with the ticker? While I still have to keep the party going??? No fucking way. Fixed prices, within reason, free me up to do other things such as getting the crowd going and convicing their friends to come down...if I spent that time counting pennies, I'd lose thousands of dollars in sales.
It's a cool concept, I just don't see it as being practical: maybe I need to check out the place in NYC to see how they run things?
Exchange Bar and Grill in NYC does that. They have a ticker and the prices of drinks on it and sometimes there are crashes were prices drop like crazy other the other way around. I've only been there once and didn't experience it but its a great bar.
^^ Very cool.
The bars in discussion seem to be merely mimicking the dynamic pricing model.
Based on OP's description, the convenience stores seem to have actually implemented the pricing model and this is why they've been highly profitable. It's a very interesting concept. This is win for both bargain-hunting consumers and the retailers.
Thanks for the post. +1
Just checked out the exchange bar and grill website. supposedly they have a market crash where all beers are $2, all drinks are $3, and all top shelf stuff is $4. Looks like I'm going and waiting for my $4 Johnny Blue.
But I really don't see how it could work in a supermarket, as there is really no way for anyone to know prices until they checkout. Unless there's a way that you could "lock-in" your price once you pick the item up, how will people ever know how much the block if cheese they picked up 25 minutes ago costs now that they are ready to check out? maybe have on the spot price tags that you print and stick on the item? Doesn't seem cost effective at all
I gotta call up some of my industrial engineering friends in UG. This would make a very fun design project.
The pricing in a supermarket wouldn't be as sensitive as in a high-turnover bar for example. The only time the pricing would change in a supermarket would be as often as they receive new stock in a given item, which wouldn't be more often than daily and probably weekly in the case of most items.
I think the dynamic pricing model works best for commodities providers (grocery stores, etc) if they're operating on an inventory turnover of 10+ (in other words, turning their inventory over 10 or more times per year and receiving new stock just as often).
Bar Dow Jones in Barca definitely implements this concept better than Exchange Bar & Grill. Surprised they haven't opened one in the City. Would be an instant hit.
This kind of pricing policy is readily in place among the fruit vendors in NYC, where the price for the same fruit can vary greatly through a week. For example, at the same fruit stand I have seen the price of strawberries vary from $4 per box to $5 per box to $3 for 2 boxes all over a 7 days period.
Also prices for many type of fruits tend to be much higher in the winter due to the lack of domestic inventory.
I was recently at Dow Jones in Barcelona- it, is lame.
Regardless of how lame it is after being there for a couple of drinks, it would do well in NYC.
This idea for a supermarket seems pretty useless. People often have budgets for food like most other expenses, and to not know how much they will pay for something might not sit well with most. Just my $ .02.
Can you purchase a beer at 1pm prices on Tuesday and take delivery on 11PM Saturday night?
@UFOInsider you're right about the fixed prices problem, I think it would only work if orders were taken electronically so prices were locked in and recorded by a computer system.
At the supermarkets you would want a digital screen displaying the current price, and the products themselves to have a chip that records the price when you take it off the shelf.
i remember learning about the potential of this in econ class and thinking this was the future. now after being away from school a few years i think it's genius if you're a business owner, could see it problems come up from the consumer's pov, "just tell me the damn price and stick with it!!" thick it definitely depends on what sector you are in. bars with a solid following yes. quickie-marts where people just want the item as fast as possible and have no relationship with the brand, maybe not?
how about paying employees based on dynamic pricing? or independant contractors billing their clients on dynamic pricing? ie "Monday i was a rockstar, i'm putting my pay up 1.5%, but then tuesday i was crap, ill put my rate down .5%"
That's how whores have done it for eons.
Any of you guys read the comments on the article? One poster brings up an interesting idea:
I'd have to agree though, the idea of dynamic pricing along with futures is only likely to succeed in certain areas of the country.That's it. Clearly we need to securitize this shit before someone else does. Irish Car Bomb CDOs.
Swaps on the keg.
I think it's an awesome idea but I'm curious how bartenders feel about it. Even if the prices were only updated, say every ten to fifteen minutes, the bartenders are the ones that have to deal with the "But I've been waiting for you to get my drink since before the prices rose!". I can see this doing well in a medium crowd bar, but I can see this being absolute madness in a packed bar (ironically where the pricing system itself would work best).
Maybe offering puts in the form of drink tickets (buy 10 for you and your buddies when prices are low) and then using those as forms of payment for drinks would take some of the hassle off the bartender? At least that way, the bartender doesn't have to worry about the current prices, only that one ticket gets one of the specified drinks.
The idea has huge potential if done correctly so that the bartenders aren't going insane. I know I'd walk out of one of these bars completely sloshed, just because of the novelty of it.
As far as prices go, A&P, C-Town, Foodtown, and all the rest get their food through mostly the same distributers, so this could only drive food prices down. It would also enable people to price other brands, like Whole Foods, against their local grocery to better take advantage of what's best for them. As far as bodegas going on the grid: that's the LAST thing they want, as many of the smaller businesses have a second set of books. Maybe the IRS will take this system into account?
I know with Dow Jones in Barcelona (which i frequented alot last year studying abroad) the biggest thing is the buzz and hype around the concept. When the club hits around 90% capacity or a certain volume of drinks is purchased over the course of an hour a "flash crash" considerably lowers drink prices for around 5-6 minutes. On multiple occasions I saw around 50-60 people rush into the bar during the 5-6 minute time frame, most of which ended up staying and buying drinks the rest of the night.
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