Most of us are aware that companies’ prices are flexible.
Businesses very often charge different customers varying rates, and frequently change prices in response to customers’ requests.
Used car sales people are notorious for being subject to negotiating-selling prices. In the Middle East, according to conventional wisdom, prices are determined as a result of a bizarre ritual. A shopkeeper will disclose the selling price of an object. The potential purchaser may say that is too much and walk away or the potential buyer will state the price he is willing to pay. The shopkeeper will most likely reject that. Then after some foot shuffling the two will compromise. The buyer is happy as he believes that he has a bargain and the seller believes that he has obtained the best possible price.
In our culture prices are determined differently.
A growing number of companies keep their prices in a constant state of change. They may offer specials late in the day. Perhaps they may combine two items for the price of one. They may offer specials ten minutes before closing time on weekends. They may raise the price quickly in response to strong demand.
If the item remains unsold for some time, the seller may offer a clearance price. For some new items, the price may be raised to maximize profits.
On toll roads prices are reduced during off hours. In bad weather some taxis may charge more than the meter and take in two passengers for an extra fare. Retailers may note the profile of a customer and raise the price accordingly.
With this so-called dynamic pricing, companies may move prices down to capture more sales to compete with others. However, they will try to avoid a race to the bottom.
Companies constantly watch online prices to ensure that they will not be undersold. Companies must maintain extra capacity to meet unexpected demand. Companies are particularly aware of new competition and often at the last minute – for example an airline if there are vacant seats.
There are valid reasons to approve of dynamic pricing.
It always must be fair. Too, it reflects an effort to confront the problems of physical retailers being merely a showroom for customers to inspect the goods and then shop online.
Dynamic pricing is more satisfactory than old-fashioned haggling as long as retailers remain conscious of service and fair value.