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Updated on Friday, November 22, 2019
The old marketing catchphrase “everyday low prices” could soon be cast into the dustbin of history thanks to dynamic pricing. With dynamic pricing, online retailers are using big data to change prices listed online frequently, using a wide variety of criteria.
Imagine an airline ticket to the Bahamas during spring break — nobody should be surprised that it’s more expensive than an airline ticket to the Bahamas in September. But what about the price of a microwave oven? Shouldn’t the price of a given make and model of microwave remain the same no matter when you shop for it?
With dynamic pricing, retailers can constantly fluctuate the cost of a microwave in order to maximize the price they get when you finally decide to buy. One 2012 academic study found that Amazon.com changed the price of a GE microwave model nine times in just one day.
What is dynamic pricing?
Dynamic pricing is when retailers use data-driven analytical tools to manipulate prices with the ultimate goal of maximizing profits. You probably learned in high school economics class that supply and demand can affect a product’s price, but dynamic pricing goes well beyond supply and demand.
For example, some retailers use ZIP codes to set prices, charging a higher price to people who live in a more affluent area. You may pay more for a sporting event ticket if the weather is nice, as ticket sellers adjust prices based on the weather. And the type of device you’re using to shop could even impact what you pay. The Wall Street Journal reported that a travel site directed people using a Mac to costlier options.
Retailers use the information collected with cookies to make pricing decisions. Algorithms estimate how much you might be willing to pay for an item, and retailers can adjust their prices in real time — maybe even more than nine times a day.
Which retailers use dynamic pricing?
Dynamic pricing has been used in the travel industry by airlines and hotel chains for years, often closely tied to supply and demand. Dynamic pricing has also been adopted by car rental companies, tour operators, entertainment groups, and e-commerce websites, said Lewis Goldstein, founder of Blue Wind Marketing, an agency that helps its customers leverage dynamic pricing tactics.
“Rideshare companies use dynamic pricing, where it’s commonly referred to as surge pricing,” he said, which is why taking an Uber will probably be more expensive on New Year’s Eve. “Airbnb uses it; they call it ‘smart pricing.’”
The adoption of dynamic pricing has been referred to as the “Amazon effect.” One study noted that Amazon changes the price of some of its consumer products as many as 70 times per year. To compete with the e-commerce giant, many retailers are adopting dynamic pricing software. The practice is even being used by the auto industry, generating an additional $1 billion in revenue for automakers over the past decade.
Dynamic pricing can lead to counterintuitive prices for some products, like tickets for concerts or sporting events. For example, ticket prices may decline sharply as the date of the event gets closer, because companies are trying to liquidate unsold inventory.
How can you beat dynamic pricing?
With big data technology working against you, dynamic pricing may seem unbeatable. There are steps you can take, however, to get your best prices in spite of dynamic pricing.
“Consumers have become more aware and price conscious over the years, knowing that retailers fluctuate prices often, both online and in the store,” said Andrea Woroch, a consumer and family finance expert. “However, retailers know shoppers are looking for bargains more than ever and will continue to change offers based on demand and to meet competitor sales.”
The following tactics can put you back in control of your spending and help you snag the best price on a purchase.
Clear your cookies
For some shoppers, clearing cookies from their web browsers could negatively impact pricing. A study about price discrimination from Northeastern University in Boston revealed registered users of sites like Orbitz were sometimes presented with better deals than non-registered users. Since deleting cookies logs you out of sites where you are a registered user, a good strategy is to shop these sites covertly first. Use Chrome’s Incognito mode or Firefox’s Private tab to search for prices, and then compare them to regular browsing when you’re logged in to make sure you’re getting the best price possible.
Compare and track prices
Whenever you’re shopping for any type of product, it’s important to do your homework. Comparing and tracking prices for the same product across different sites is one of the most effective ways to beat dynamic pricing.
“Begin researching prices across several retailers to see who is selling it for less,” Woroch said. “Sites like CamelCamelCamel will give you price history of products sold on Amazon which you can use as a benchmark to compare prices across other sites.”
Don’t always default to Amazon when you research products, though.
“Amazon isn’t always the cheapest place to buy an item,” said Goldstein. “It’s always good to first shop around. You may come across websites that offer lower prices because they focus on carrying items specific to that industry. They may have better arrangements with manufacturers over sites like Amazon, where the fees may be higher.”
Use savings tools
There are tons of shopping apps available to help you compare prices and save money. One of our favorites is Honey, a shopping app that you add to your browser. With Honey’s Droplist feature you enter the products you want to buy and the app monitors sites where they are sold. When prices online fall below a pre-selected level, the app sends you an alert.
“Droplist monitors the price of an item for 30, 60, or 90 days, and automatically sends an email when the price drops to the amount you set,” Woroch said. “Honey also searches for coupons and automatically applies applicable deals to your online cart to help you get a lower price.”
Set up sale alerts
Set up sale alerts to learn when a product’s price drops due to a promotion or available coupon. Pinterest has a setting to alert you when something you’ve saved from a retail website drops in price.
You can also use SnapUp, an app that organizes your mobile screenshots of products into a database and lets you organize by category, and sends you an email when product prices drop.
Goldstein recommends setting up an alert using Google Flights when you’re looking to fly. “Google Flights will, similarly to Honey, keep track of when prices go up and down, so you can buy a ticket at the best time,” he said.
Talk to your retailer of choice
You can bypass the retailer’s tools by picking up the phone or opening a chat window.
“I also find that simply asking a customer (representative) whether in store or online via chat or by calling customer service is a great way to see if there are any discounts available that you may not know about,” Woroch said. “I’ve even had success asking for free shipping even when a specific coupon wasn’t available. So, just ask — it can’t hurt.”
If you’re already made a purchase and you notice the product went on sale later, ask the retailer if they can give you a refund for the price difference. “Many retailers offer price adjustments but may have different requirements on how to qualify, depending on how soon after you bought something it goes on sale,” Woroch said.
This sounds obvious, but it’s easily overlooked if you’re making a quick purchase. If a checkout page has a field for a promo code, take a moment to look for one before you proceed. Search the name of the retailer plus “coupon code.” You can also visit popular coupon websites, such as RetailMeNot or CouponCabin.
If you don’t need the item right away, another good way to score a coupon code is to abandon your cart. Some online retailers will use email marketing software that delivers discounts to your inbox if you don’t complete a purchase.