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More businesses using dynamic pricing to max demand, profits

FILE - This 2017 photo shows bowling lanes. (AP Photo/Jae C. Hong)
FILE - This 2017 photo shows bowling lanes. (AP Photo/Jae C. Hong)
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Dynamic pricing appears to be spreading to new businesses.

"The question is how sustainable it is for a given enterprise or sector," said Mark Hamrick, Bankrate's senior economic analyst.

Dynamic pricing is not a new concept.

“Ultimately, this gets back to the classical issue in economics of supply and demand,” Hamrick said.

Airlines have done this for a while. A flight price is dictated by the demand and timing of the purchase.

Even happy hour at your local pub is a form of dynamic pricing.

It's about boosting revenues, and ultimately that's the path toward driving profits,” he said. “And if you have undersold inventory ... then that presents an opportunity to leverage technology, whatever kind of technological solution you have at your disposal, and to connect with the consumer.”

The Wall Street Journal reports dynamic pricing, or surge pricing to take advantage of peak demand, is creeping into some unexpected areas of everyday life – bowling alleys, fitness classes, and tee times at a municipal golf course.

The newspaper spoke with one man who wanted to schedule a bowling outing during the holidays but was hit with a $418 price quote, which was more than double what a comparable time would’ve cost otherwise.

The WSJ reported a bowling company executive said adjusting pricing based on time and day helps meet demand while "maximizing guest happiness ... and maximizing profitability."

"The bowling alley felt to me like the last egalitarian, fun, middle-America thing," Alex Yenni, of Petaluma, California, told the WSJ.

He said it "felt pretty appalling" to encounter the surge pricing for such a common activity.

The WSJ also talked to a Philadelphia woman who quit an exercise-class subscription service out of frustration over dynamic pricing, where high-demand classes were costing more than others.

Folks are used to paying less for a movie matinee than an evening show, but AMC Theatres is taking it a step further by testing premium seating prices. The best seats will cost $1 or $2 more than the typical seats, and the “value” seats will come with a discount of a couple of bucks.

“In inflationary times, costs rise, so prices rise. Under the old system, our only option was to raise prices on all seats. Sightline lets us raise prices only on our most popular seats, but we can also hold the line on Standard seats & actually cut prices on Value seats,” tweeted AMC Theatres CEO Adam Aron.

Hamrick, of Bankrate, said the spread of dynamic pricing comes with changes in technology, such as more companies using advanced booking systems and algorithms to balance pricing with demand.

It’s also been influenced by inflation, as companies look to maximize profits and customers look to maximize their spending power.

“AMC is just obviously trying to flex that muscle in new and different ways. I'm a little skeptical about the idea of pricing an optimal seat in a movie theater, because movie theaters ultimately have a huge amount of inventory or supply of seats, including in the early part of the days, that they need to unload,” he said.

Aron tweeted acknowledgment that the dynamic pricing they’re testing is a “big change” and that they’ll “carefully monitor reaction by moviegoers during the test.”

Hamrick said dynamic pricing can be good or bad for consumers.

Transparency, communication and predictability are key.

The woman in Philadelphia who quit the exercise platform complained about the constantly changing prices.

If customers see predictability in price fluctuations, then they can try to make it work to their benefit.

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“It could be that if these prices are so dynamic, that that stands in the way of a good relationship between the business and the customer,” Hamrick said.

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