Is Dynamic Pricing the Wave of the Future?

Eddie Braverman's picture
Rank: The Pro | 21,117

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?

Comments (44)

Apr 16, 2012

Can you imagine the potential for drinking games if there was a live ticker price on every single drink at the bar?

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Apr 16, 2012
happypantsmcgee:

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.

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Apr 17, 2012
heister:
happypantsmcgee:

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.

Apr 16, 2012

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.

Apr 16, 2012
Cola Coca:

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.

Apr 16, 2012

I'm not sure if this would be successful...

Apr 16, 2012

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.

Apr 16, 2012

The Brew Exchange in Austin has the same concept. Haven't given it a visit yet..... yet.

Apr 16, 2012

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

Apr 16, 2012

How pre-WWI.

Apr 16, 2012

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.

Apr 16, 2012

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?

Apr 16, 2012

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.

Apr 16, 2012





Apr 16, 2012

^^ Very cool.

Apr 16, 2012

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

Apr 16, 2012

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

Apr 16, 2012
leveRAGE.:

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

It wouldn't make sense for people to not know the price when they pick up the item. Most consumers wouldn't go for that. Maybe they take the average price within the last 30 mins at the checkout? (simple to implement. this doesn't have to be a fully efficient marketplace) Maybe a mini chip that you tag against the price tag when you pick it up? (this would be costly I know)

I gotta call up some of my industrial engineering friends in UG. This would make a very fun design project.

Apr 16, 2012
EngBanker:
leveRAGE.:

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

It wouldn't make sense for people to not know the price when they pick up the item. Most consumers wouldn't go for that. Maybe they take the average price within the last 30 mins at the checkout? (simple to implement. this doesn't have to be a fully efficient marketplace) Maybe a mini chip that you tag against the price tag when you pick it up? (this would be costly I know)

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).

Apr 16, 2012

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.

"All I know is I know nothing."

Apr 16, 2012

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.

Apr 16, 2012

I was recently at Dow Jones in Barcelona- it, is lame.

Apr 16, 2012

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.

"All I know is I know nothing."

Apr 16, 2012

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.

Apr 16, 2012

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%"

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Apr 16, 2012
AndyLouis:

or independant contractors billing their clients on dynamic pricing?

That's how whores have done it for eons.

    • 1
Apr 16, 2012

Any of you guys read the comments on the article? One poster brings up an interesting idea:

This seems a perfect opportunity for the bar to sell drink "futures" wherein a patron can buy drinks in advance tracked using a gift card. If the spot price is lower than the pre-paid price the patron will pay cash; otherwise they will use their card. The bar gets free use of the patron's money until the drink is purchased.

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.

Apr 16, 2012
luccabananas:

Any of you guys read the comments on the article? One poster brings up an interesting idea:

This seems a perfect opportunity for the bar to sell drink "futures" wherein a patron can buy drinks in advance tracked using a gift card. If the spot price is lower than the pre-paid price the patron will pay cash; otherwise they will use their card. The bar gets free use of the patron's money until the drink is purchased.

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.

Apr 17, 2012
Edmundo Braverman:
luccabananas:

Any of you guys read the comments on the article? One poster brings up an interesting idea:

This seems a perfect opportunity for the bar to sell drink "futures" wherein a patron can buy drinks in advance tracked using a gift card. If the spot price is lower than the pre-paid price the patron will pay cash; otherwise they will use their card. The bar gets free use of the patron's money until the drink is purchased.

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.

Apr 16, 2012

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.

Apr 16, 2012
MailmanBitesDog:

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).

See above. As an abstraction, yes, it's perfect but realize that traders just have to deal with the trades themselves in real time and delivery is 1-10+ days depending on the product. Compare that to bringing goods in real time in an alcohol saturated environment with people who's judgement is questionable (my own included on a really good night) and it's not viable beyond a novelty. Slow it down though, and some industries could totally benefit. Personally, I see the value of currency as being increasingly tied to stocks/bonds/commods/actual goods over time as they are completely decoupled from any backing: real or historical (see: gold). As time passes, I'm sure some smart people will make this work, it's a cool idea and computers make it possible.

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?

Apr 16, 2012
MailmanBitesDog:

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).

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.

Here's the thing. If you can't spot the sucker in the first half hour at the table, you are the sucker.

Apr 16, 2012
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Apr 17, 2012

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