5 Dynamic Pricing and Elasticity
Jessie Martinez
The Coca Cola company unveiled a vending machine in 1999 that automatically changed the price of the soda depending on the temperature outside. A ninety five degree heat day would cost you more to buy a coke than a ten below middle of winter day. The price is just reacting to the change in demand, correct? Try to get an Uber ride on a Saturday night will cost more than one on Sunday afternoon. Uber changes the prices of their services based on distance, traffic, and the number of riders to drivers available. The Uber price is simply responding to how supply and demand impacts equilibrium price. The market place powerhouse Amazon adjust their product prices 2.5 million times each day based on “…demand, stock availability, and customer behavior.(Werner)” Amazon analyzes the products that customers are viewing, when they are viewing, and the patterns in consumer behavior to optimize their prices. Coca Cola, Uber, and Amazon are using dynamic pricing. Dynamic pricing, sometimes called surge pricing, is a pricing strategy that just reacts to changes in market condition.
Consumers reaction to dynamic pricing is mixed. People complain the Uber is ripping them off during peak times, and the consumers reaction was so negative that coke had to scrap the temperature sensing vending machines idea. Consumers did not like feeling they were being manipulated. However, consumers do not seem to have the same reaction to Amazon even though they utilize a sophisticated algorithm that literally manipulates your individual price experience. Consumers don’t seem to realize that all the prices on the Amazon page, including the recommended substitutes and complement prices, are all being manipulated.
Coca Cola was being honest and following the basics of ECON 101. The price should rise when demand is high. A hot sunny ninety five degree day, people should be willing to pay a litter higher price for a thirst quenching beverage. The price was just changing to meet a change in demand following the rules of market capitalism. Shouldn’t consumers expect that?
Questions:
- Do a little research and find three other companies that use a dynamic pricing model similar to the companies listed above.
- Why do you think consumers reacted so negatively to Coca Cola’s temperature sensing vending machines? How do you feel about the idea?
- Describe what price elasticity is. How are dynamic pricing and elasticity related?
- Explain why Ubers dynamic (surge pricing) is actually beneficial to consumers.
References:
“Dynamic Pricing: The art of the deal” (Jul 9, 2020) Marketing Weeklyhttps://www.marketingweekly.in/post/dynamic-pricing-the-art-of-the-deal
“How does Uber’s pricing work?” https://www.uber.com/en-GB/blog/uber-dynamic-pricing/
Werner, Geyser. “The Ultimate Guide to Amazon Dynamic Pricing Strategy in 2024”. The Influencer Marketing Hub. https://influencermarketinghub.com/amazon-dynamic-pricing/