You Changed the Price on Me?

If you’ve recently booked an airplane, car, or hotel, you’ve experienced so-called dynamic pricing: Costs shift, sometimes wildly, usually jumping in the days before the trip—except when they plummet, and you pat yourself on the back for snagging a last-minute deal. 

Now restaurants and retailers want in on the game, and they’re facing some significant pushback. Shoppers are alarmed, while lawmakers say it’s price gouging. Indeed, we’re in the midst of a rocky transition that shows the perils of deploying certain new technologies. “Dynamic pricing is certainly here to stay,” says John Long, North America retail sector leader at Korn Ferry, “but shoppers will always talk when something doesn’t benefit them.” 

To be sure, restaurants have been offering early-bird and happy-hour menus for decades. But customers typically don’t regard these specials as dynamic pricing (they are). In fact, consumers perceive prices as generally static, due to many decades of retailers adhering to manufacturers’ suggested prices. Remember the Filene’s Basement tags that listed future price reductions? Retailers trained customers to expect a base price and subsequent discounts. This continued until the surge in modern retail algorithms 20 years ago, which allowed carefully timed markdowns that maximized marginal dollars.

In dramatic fashion, the travel industry expanded the concept into consumer-facing real-time shopping, creating customer portals where prices can change minute to minute. The same technology is now leapfrogging into some brick-and-mortar stores and restaurants, where display screens or QR codes transmit the prices of the moment.

Customers haven’t been enthusiastic. “People appreciate a discount,” says retail expert Craig Rowley, senior client partner at Korn Ferry. “What they don’t appreciate is a premium.” He is not surprised that some firms have backtracked, reframing dynamic pricing as an off-peak rate, which customers perceive as… a discount. The problem, says Rowley, is that most shoppers mistakenly assume that dynamic pricing only benefits the retailer (indeed, 52% of consumers think it’s price gouging, according to a 2023 survey by Capterra). 

For firms intent on moving ahead with dynamic pricing, experts point to a straightforward solution: “The messaging has to tell the customer what’s in it for them,” says Peter McDermott, a Korn Ferry senior client partner in the firm’s Corporate Affairs Center of Expertise. For example, a company might offer a limited number of front-row concert seats or midnight taxis, but customers know that if they pay more, they can snag ‘em. That’s the benefit. Broader secondary messaging can help spread the word to consumers. For example, a typical airline customer can rattle off the many factors that might impact day-to-day prices, such as fuel costs and union negotiations. Such messaging hasn’t taken hold with retail and restaurant consumers, however. 

Above all, experts advise that companies make sure they continue to encourage buying. No consumer wants to feel like they’re the sucker who overpaid. “The line you don’t want to cross is discouraging customers from buying,” says Long. “Make it convenient and easy.” 

Learn more about Korn Ferry’s Consumer Markets capabilities.

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