Dynamic Pricing and AI: Is it Worth the Headache?

May 30, 2024

By leveraging buyer behavior insights and understanding their needs, values and desires, dynamic pricing can be a huge opportunity for retailers.

It’s fair to say that, so far, dynamic pricing strategies have proven to be something of a hard sell for brands. In the UK, Stonegate Group pub chain announced its dynamic pricing plan to charge more for drinks at peak times and faced backlash about “unhappy hours” and generated negative headlines about “outraged punters” having to pay 20p extra per pint at weekends.  When US fast-food chain Wendy’s dynamic pricing model gained media attention earlier this year, it wasn’t expecting the hashtag #BoycottWendys to trend on social media.  Like Stonegate Group, Wendy’s was considering testing dynamic pricing and AI-powered menu changes through its new digital menu boards from 2025. Unfortunately,  this was misconstrued by some media outlets as the introduction of an ‘Uber-style’ price surge at busy times.  In response, competitor Burger King capitalized on the opportunity with a “no urge to surge” campaign alongside messaging that the fast-food outlet will not be charging customers more, especially when they’re hungry. This was coupled with a voucher for a free Whopper for every $3 spent. And, even though Wendy’s clarified that it had no plans to increase prices – instead offering discounts during quieter times – the debate and confusion surrounding dynamic pricing was reignited.

Get it right by leveraging consumer understanding and addressing concerns head on

Does this mean that the approach should be avoided? Absolutely not. We believe that through careful positioning and proactively aligning efforts to people’s values, desires and needs, it is possible to introduce a dynamic pricing strategy that will be an easy sell for all concerned.

AI technology makes dynamic pricing possibilities too great to ignore

Although some sectors – such as peak and off-peak travel – have long employed this strategy, new technology, including AI, allow for more frequent and personalized adjustments. Dynamic pricing involves adjusting the prices in response to fluctuations in supply and demand considering factors such as time of day, season, stock availability, weather conditions and more.

Adopting this new capability to take control of prices and therefore margins and profit has a potentially transformative upside for a wide range of businesses.  With this in mind, brands should strive to be the first to successfully implement the functionality in their industry, rather than wait to fall victim to disruptive innovation by others.  The potential rewards of dynamic pricing are too big to ignore and it is likely to be a disruptive force in many more sectors in the years to come.

Tackle consumer cynicism and concern about AI

While Artificial intelligence has the potential to turbocharge the possibilities for dynamic pricing, it’s important not to overlook consumers’ inherent scepticism towards the technology. For instance, our data shows that 35% of Brits believe greater use of AI will have a negative impact on their ability to trust in brands / services, while only 22% believe it will have a positive one. It will become increasingly necessary therefore to be open and transparent about AI’s role, how it works and the benefits it can offer consumers as well as brands.

Stress that good deals are there – and finding them can be fun

Cynical consumers will naturally assume that with dynamic pricing costs are more likely to go up than down. With this in mind it is important to stress, as Wendy’s did in its follow up statement, the opportunities for deals and discounts. This appeals to consumers’ desire to feel like they’ve discovered a good deal for themselves, which our data suggests is a major motivator for shoppers around the globe, with 7 in 10 agreeing they specifically look out for promotions when shopping in store or online . Another opportunity would be to integrate gamification into the search for the best deal. This will appeal to consumers’ competitive nature, and chimes with our trend ‘Challenge Accepted!’ 

Sustainability: Waste reduction will appeal to eco-conscious consumers

Another potential benefit of dynamic pricing that our data suggests will resonate with consumers is waste reduction. Despite supermarkets’ best efforts, much perishable food still ends up going to landfill once its expiry date has passed. At a time when 84% of global consumers agree that  companies should be doing as much as they can to reduce their impact on the environment rather than wait to be forced to by the government,  this is a problem waiting for compelling solutions.  By using AI technology and dynamic pricing, more efficient discounting could be introduced when supply is especially high, ensuring stock is more likely to be sold in time and food waste is reduced.  

While there’s an opportunity to maximize revenue, the mere suggestion of companies even contemplating introducing such a system has been met with widespread public backlash and in some cases furious backpedalling. But don’t let this put you off pursuing this opportunity to take control of your finances in new ways! As with many new opportunities connected to emerging technologies, getting dynamic pricing right is largely dependent on using them in a way that aligns with people’s values, desires and needs. 

Talk to Foresight Factory to discover the best approach for aligning your future strategy with the future needs of consumers.  


Written by David Crosbie

David has worked in the field of consumer trends and futuring for over a decade. He has helped clients in a wide variety of sectors – from food and drink and other FMCG to financial services and more – to plan effectively and create successful future strategies that are firmly embedded in consumer understanding.

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