Dynamic pricing in the age of algorithms
AI is already rewriting the rules of romance, and the rise of so-called grief bots might even offer you a little comfort when you need it most. But can AI algorithms predict your future or how much you are willing to pay for a concert ticket, holiday, meal, or even your grocery shopping?
AI is already rewriting the rules of romance, and the rise of so-called grief bots might even offer you a little comfort when you need it most. But can AI algorithms predict your future or how much you are willing to pay for a concert ticket, holiday, meal, or even your grocery shopping?
Ticketmaster recently hit the headlines for all the wrong reasons again after Oasis fans found themselves looking back in anger when the £148.50 tickets they were hoping to secure had gone up to £355.20 by the time they reached the front of the virtual queue. Welcome to the world of dynamic pricing, or surge pricing, as it's often referred to when your Uber fare suddenly doubles during a busy period.
How AI and big data fuel dynamic pricing strategies
It's a good old-fashioned story of supply and demand. When demand outstrips supply, either the supply or prices rise. But if you look beyond a few Uber trips and a nineties indie band reforming, dynamic pricing is everywhere, from hotel rates to airline tickets during school holidays. Even fast-food outlets have used this dynamic pricing to push up prices at times of high demand.
Unfortunately for consumers, combining AI, ML, and big data makes dynamic pricing an increasingly attractive strategy for retailers. Insights hidden in a treasure trove of consumer data make predicting what shoppers will pay for items at critical points in the year easier. When a supermarket offers you loyalty cards to get discounts, make no mistake, there is more in for them than you.
The two-tiered shopping experience
In the UK, Tesco has been accused of introducing a two-tiered shopping experience. Cardholders who consent to their data being harvested are offered cheaper prices. But here is the kicker: Non-Clubcard pricing is often inflated to make it seem that Clubcard prices provide excellent value.
Amazon has been changing the price of millions of items daily for many years, and now AI is helping other retailers catch up. But there is a fine line between dynamic pricing and the predatory, intrusive, and exploitative way of running a business in a digital age, especially when sometimes all that we see online is not as it seems.
🛒YOUR personal details are being traded for supermarket discounts
undefined Big Brother Watch (@BigBrotherWatch) September 13, 2024
undefinedPrivacy should not be a premium product available to those who can afford it, it's a right for all to enjoyundefined
Find out the alarming truth about undefinedloyaltyundefined card schemes⤵️https://t.co/0AUtU9TMQP pic.twitter.com/klsfBpfT15
Algorithms, bots, and the illusion of demand
According to Imperva's Bad Bot Report, 47.4% of all internet traffic is made up of bots. As AI's silent takeover continues to gather pace, algorithms will build the hype and give the illusion that everybody is talking about the next big thing.
Once something becomes popular, brands could give the green light for a master plan to increase prices significantly until demand changes. Whether that be a massive sporting event or entry to a Hollywood summer blockbuster on release day, we could see the increasing manipulation of consumers in a bid to drive profits.
The good news is a test strategy by US Restaurant chain Wendy's to increase prices during busy lunchtime periods caused a considerable backlash online forcing the fast-food giant to retreat from dynamic pricing.
US Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, also called for greater surge pricing transparency from Uber and Lyft. In an open letter, Brown stated that algorithms suppress competition and remove customers' ability to find the lowest price.
"Using algorithms to set prices, including dynamic pricing, abuses consumer data and suppresses competition, making prices unpredictable and taking away people's ability to find the lowest price."- Senator Sherrod Brown.
We are entering a world where the price of our food will depend on what loyalty card we carry or the time of day we order it. The items saved in your basket for a rainy day will go up and down in price throughout the week, and getting an Uber home from a night out on a rainy day will cost more too.
Whether it be going to watch your favorite sports team or concert or booking a holiday, the prices will vary greatly. Surge or dynamic pricing has been mainly under the average consumer's radar. Still, with new AI solutions appearing every week promising to improve revenues using the tried and trusted strategy, it's time for shoppers to get streetwise against the algorithms attempting to predict their every move.
What can consumers do to fight back?
Dynamic pricing plays on your most significant vulnerabilities and weaknesses for FOMO. That could be escaping a big downpour, buying a cold beer on a hot day, or securing the hottest tickets for a big event. As a consumer, you can refuse to be drawn into the hype or play the game of doing everything at the same time as everyone else. It's time to exercise patience and be more strategic when shopping.
For Amazon, you can upload your wish list to Camel Camel Camel, which allows you to set price alerts and see the entire price history of an item so you know when it's truly a bargain price. Elsewhere, Honey is an app and browser extension that automatically adds discount codes when purchasing online, saving you scouring the web looking for promo codes.
However, the biggest takeaway of the charge towards a dynamically priced world is the gap between consumer perception and the business leaders running the show. Shoppers see it as intrusive and predatory, whereas retailers have always believed that all goods or services are worth what the market is willing to pay.
The manipulative use of our data run through sophisticated algorithms should make you question every purchase and whether you are using your device or if it is using you.