Is Dynamic Pricing the Wave of the Future?

Eddie Braverman's picture
Rank: The Pro | 21,095

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?