What would dynamic pricing look like in the wine trade?

Thursday, 13. July 2017 - 16:45

When you’re sitting on a plane, do you wonder about how much less or more the passenger sitting next to you paid for their seat because they booked it before or after you did? Have you fumed at the supplement Uber has charged you for a journey during rush hour on a wet Friday night?

Dynamic pricing – the mechanism employed by the airlines and the disruptive taxi company – are not new. Following deregulation in the US, American Airlines pioneered the idea of applying basic Adam Smith principles to their ticket selling: higher demand meant higher prices. Discount carriers followed suit and today the chances of you and your neighbouring passenger having paid the same for your seats are probably far slimmer than he is.

But 21st century dynamic pricing is, well, far more dynamic than anything the pioneering economist might ever have imagined. If you take a break while shopping for an airline seat and return to the same site, you may find the $400.00 price has mysteriously gone up to $475.00 or more. Cross the road and perform the same search on your neighbour’s computer and the cost will be the same $400.00 that you saw half an hour earlier. Apparently returning web shoppers are surprisingly ready to pay a bit more for something that has already taken their fancy.

In a strategy that I call ‘half-Robin’ – after the first part of Robin Hood’s taste for stealing from the rich and giving to the poor – retailers unashamedly present higher price tags to internet shoppers who live in wealthy districts and, for the same reason, to users of Apple computers, tablets and phones.

Supermarkets have followed similar principles when applying ’zone pricing’: the toilet rolls in a chain supermarket in a prosperous suburb might cost rather more than the ones in a poor, inner city neighbourhood. Bottles of Prosecco on the shelves of a hypermarket could be cheaper than the ones in the same company’s smaller high street shop frequented by shoppers who rush in to get a last minute gift to take to a dinner party.

Until now, however, the requirement to synchronise the printed price tags on the shelves with the barcode reader at the checkout, has prevented the chains from fine tuning prices at will.

This month, however, brought the news that UK supermarkets are experimenting with price tags produced using digital ink of the kind many of us know from ebooks. With the help of this technology, the price of a product could change from £10.00 to £5.00 – or vice versa – before the consumer’s eyes.

Historically, of course, supermarkets have often priced their wines in ways that seem to be the opposite of dynamic. On February 14, the date on which retailers might be most confident of selling pink Champagne, retailers often slash its price. For them, luring shoppers into their shops on Valentine’s Day and encouraging them to fill their baskets with other profitable items is more important than making a bigger margin on the fizz.

This blunt marketing tool could soon give way to a more precise strategy. On future Valentine’s Days, Champagne buying might, for instance, be incentivised by prices that rise every hour – or which rise unpredictably, to exploit the proven appeal of Zara’s When It’s Gone It’s Gone model. On the other hand, chains could instantly cut the prices of particular brands in order to match their competitors. The havoc this will cause to price-comparison sites like Wine-Searcher is easy to imagine.

Alternatively, the retailers and their suppliers could market test consumer reactions to the pricing of new products or packaging. Would customers with a particular demographic profile pay more for a red label than the blue one? Would adding a medal to a label make the wine ‘worth’ more to the shopper?

Until now, this kind of research was the domain of more or less reliable focus groups, or individualised websites. Today, with the flexibility afforded by short print-run labels, barcodes and digital ink, it can move into ‘real life’.

And how much will any of us mind the retailers playing with our brains in these ways? No more, I’d guess, than we are bothered about the dynamic pricing policies of Uber and the airlines.
Robert Joseph