With the holiday shopping season kicking into full gear, you may notice something new in the stores this year: electronic price tags that allow for dynamic pricing. This pricing model gives retailers the ability to change prices in a matter of seconds depending on a variety of factors, including demand, online competition, and possible promotions and sales.

To better understand the pricing model, we asked Assistant Professor of Marketing Jennifer Fritch to weigh in on the practice, and what its future might look like. 

This Q&A has been slightly edited for clarity and length.

How would you explain dynamic pricing and why it’s become such a common strategy across industries? In what industries is it most popular?
Consumers see price as a number. The price is too high, too low, or just right. Some consumers might perceive a relationship between price and quality; for example, a high price means higher quality. It’s the exact reason people will pay a premium for certain brands, whether there is a quality difference or not. Whatever the consumer’s perception is of a price, the price creates an emotional reaction, which will influence behavior.

For companies, the process of pricing a product or service is anything but emotional. It’s a collection of several inputs. Successful pricing strategies consider the company objectives, the customers, the cost of making the product, the competitors and the channel members, or businesses that are involved in getting the product from the producer to the final consumer.

Dynamic pricing is the process of charging different prices for goods or services based on the type of customer, time of day, week, and season, and the level of demand for that product. Airlines, retail chains, travel platforms, sports teams, ticket sellers, and rideshare companies use dynamic pricing.

What role does technology, such as AI and real-time data analysis, play in dynamic pricing models?
A company’s access to mountains of data, coupled with AI’s ability to analyze massive data sets, enables real-time assessments of behavioral patterns, trends, and consumer demand. This lets companies change prices dynamically.

It’s the exact reason that a consumer can look at a trip to France on Expedia and look at that same trip again one week later and the price has increased by 10%. Similarly, a ticket to a Phillies game in June will cost much less than that same ticket, in the same seat, in October. Ever take a close look at the pricing displays in Kohl’s? Most of them are digital. Why? So that prices can change with the push of a button. 

Dynamic pricing is everywhere now, whether consumers realize it or not. Consider a local Uber ride that costs $11 mid-morning, but during rush hour the price doubles. As a consumer, this is bound to cause a host of emotions, not the least of which is refusal to pay double for that same ride. The question is, how sustainable is this pricing model?

The idea of pricing seasonally is not new. A snow blower in July will cost far less than a snow blower purchased in the dead of winter. The difference is that the price changes of the past used to happen monthly, quarterly, or annually instead of daily or by the hour. AI, data abundance, rising labor and transportation costs, tariffs, and inflation have all contributed to changing the game, requiring a more modern approach.

Is dynamic pricing here to stay? How long until we see it in every store we visit?
Dynamic pricing is likely to become our new normal. It’s only a matter of time until it shows up in most grocery stores and other retailers. There are some grocery chains that have it already. Once consumers come to expect dynamic pricing from the marketplace, static pricing may truly become a thing of the past.

Companies will have to watch consumer behavior closely. Many consumers will have a negative reaction to a noticeable price change that happens between the aisle and the register. Still, some consumers won’t notice or won’t care. Companies will have to be able to recognize the specific price point where a price of X will send customer Y straight out the door. Not to mention that some consumers may perceive dynamic pricing as price gouging or even unethical.

While dynamic pricing generally favors the company over the consumer, there is hope that it comes with better incentives, a reward for brand loyalty, and more personalized product offerings. Only time will tell. In the meantime, I’m still buying ice cream no matter what the price is.