We’ve all seen airline ticket prices vary depending on where the seats are on the plane and when and when the plane leaves, but other businesses, like restaurants and theaters are also increasingly changing their prices to better balance supply and demand.
The tactic, commonly referred to as premium pricing or dynamic pricing, was once largely limited to large companies in airlines and ride-sharing spaces.
Now, fitness studios, movie theaters, bowling alleys, and even restaurants charge customers different prices for the same goods and services to better regulate customer demand and respond effectively to consumers who are willing to pay. .
Sort the customers who will pay the most
“Restaurants often struggle to balance supply and demand, so if there’s an unexpected spike in reservations, for example, they might not have enough tables,” said Robert Shumsky, professor of restaurant management. operations at the Tuck School of Business in Dartmouth.
A restaurant could simply turn away customers they don’t have room for or raise prices in real time “to try to figure out which customers are most willing to pay for that special moment,” Shumsky said. “And it’s increasingly prevalent in a variety of industries and you’ll see it on your apps and when you visit your restaurant or your amusement park or even your bowling alley.”
Moviegoers can choose to save or splurge on tickets at AMC theaterswhich recently announced a new pricing structure whereby tickets for seats cost different amounts depending on where they are in a given theater.
“A flood of information”
Companies once relied on expensive software and algorithms to determine pricing structures that would help them maximize profits. Now businesses of all sizes have access to more data about consumer preferences.
Reservation apps, for example, collect valuable data on the busiest times for restaurants.
“They know how many customers need a service and it gives them a flood of information that allows them to make better pricing decisions,” Shumsky said.
He argues that consumers have also become accustomed to the phenomenon of soaring prices in their daily lives.
“I think people have gotten used to the idea that prices can change in real time for certain services, so you see it creeping into new industries over time,” Shumsky said.
Those who are willing to pay might not get the best deal, but they will get a reservation or whatever service they are willing to pay extra for. Conversely, consumers on a budget can visit a theater during off-peak hours for cheaper seats.
“Consumers are of course always welcome to vote with their feet,” Shumsky said.
Rising prices can make planning difficult – if, for example, you have budgeted for an activity whose price suddenly changes.
“When you can’t plan because prices vary dramatically over time, it makes life more difficult,” Shumsky said. “And consumers may decide not to patronize a particular service because of that.”