Once the express domain of the hospitality and travel industries, dynamic pricing has started to seep into more everyday applications - literally. Take Uber for example, the taxi-hire app that's driving widespread acceptance of wildly differing prices dependent on real-time demand for drivers.
Dynamic pricing is not new. From time immemorial, people have haggled over food and goods in souks and marketplaces across the world. In traditional bricks and mortar stores introductory offers, seasonal pricing, bulk-buy deals and cut-out-and-keep-coupons have been the traditional methods when varying price to meet volume objectives.
B&Q is presently testing electronic price tags that alter the price of an item based on the profile of the customer
But the biggest step-change has come with the rise of Big Data.
Whereas traditionally people have differentiated themselves based on their preferences, we're now being specifically targeted based on granular data - the down and dirty of what we buy, when we buy it and how often.
This started innocently enough with the advent of loyalty cards. Consumers have been willing participants - trading data in return for better offers geared around their actual shopping habits. For the shopper marketer, dedicated to overcoming barriers to purchase, this insight into the mindsets and missions of shoppers is marketing manna from heaven.
But how far could the use of data be pushed?
Variable pricing
B&Q is presently testing electronic price tags that alter the price of an item based on the profile of the customer. The system uses data stored from loyalty cards and spending habits (via a chip in shoppers' mobile phones) to work out a price to be displayed next to the goods on shelf. The retailer claims the move will reward loyal shoppers.
For the optimists among us, developments like this are just a high-tech extension of the vouchers we normally receive in the post or at till. For the conspiracy theorists, they're the start of a two-tier pricing system that could end up inadvertently favouring the well-off at the expense of the disadvantaged.
It's one thing to tweak the price of a drill-bit according to what you think the customer will pay, but what about food? What happens when the major supermarkets get involved? The likes of Tesco has data in abundance, and they are already trialing smart shelves.
When supermarket spend is shrinking for the first time since records began, it's not too great a leap to see how the power of Big Data could be used in morally questionable ways
How long before personalisation tips over into discrimination?
Imagine a scenario where ready-made toddler meals cost way more for a mum whose personal data shows she's recently had another baby - offering her the convenience she craves but at a premium price.
Or where a pint of milk at a local store costs more for a frail pensioner whose only option it is than for a car-driver?
Or where a packet of cigarettes for a nicotine addict costs double that for a social smoker, because the heavy user is more likely to pay the inflated price?
Extreme examples of price optimisation based on demand, or the deliberate exploitation of people's vulnerabilities for fiscal gain?
This may seem like an unrealistic scenario, but when supermarket spend is shrinking for the first time since records began, it‘s not too great a leap to see how the power of Big Data could be used in morally questionable ways.
Yet if retailers don't control their dark urges, perhaps today's empowered consumers will do it for them? When Uber demonstrated a lack of moral judgment by dramatically hiking prices during a snowstorm in New York, there was a major outcry. As one Twitter user summed up, they had shown themselves to be "price-gouging assholes". As a consequence, an agreement was reached with New York's attorney general to cap 'surge pricing' in emergency situations.
Price testing
Amazon faced a similar backlash when found to have charged some people more than others for DVDs in random price testing. Within the space of a fortnight they were forced to apologise, issue refunds and strenuously state that they had never, and would never, test prices based on customer demographics.
But Ian Cheshire, chief executive of B&Q owner Kingfisher, is confident that the airline model of different prices at different times could become the norm. "We could move to dynamic pricing and mimic the model used by EasyJet. Yield management techniques are not new - it's just that they haven't traditionally been used in retailing."
In an echo of the warnings found on alcohol, let's hope they use their big data responsibly.
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