What is dynamic pricing, and how will its increasing adoption affect your wallet?

Recently, the fast food chain Wendy's faced backlash after it announced a plan to start moving prices in tandem with demand, a practice known as dynamic pricing. While consumer outrage may have forced Wendy's to back off its plan, it's unlikely to entirely derail the pricing model that is increasingly taking hold — especially as technology makes it easier than ever to implement.

In fact, the practice of adjusting prices based on demand — also known as variable pricing — has already been happening, particularly with ride-hailing apps, concert tickets, and hotel and airline reservations. Now, it's creeping over to restaurants and other industries as well.

What exactly is dynamic pricing?

Put simply, dynamic pricing "uses real-time supply and demand data to fluctuate prices up or down," said NerdWallet. In other words, during slow times, prices are lower, whereas when business is busier, prices are higher.

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Anticipated customer demand is usually what is pushing prices up or down. As an example, "movie theaters have also introduced variable pricing for anticipated blockbusters, such as 'The Batman,'" said The Wall Street Journal. And with the classic happy hour, prices are lower earlier on, when fewer people tend to be at the bar for a drink.

Sometimes, prices may fluctuate seasonally or based on the weather. For instance, "people travel in the summer months, so airline tickets are more expensive in the summer," said NerdWallet. Meanwhile, "ski lift operators can lower prices when conditions are subpar."

Why is dynamic pricing on the rise?

While the practice of dynamic pricing isn't anything new, it has become increasingly possible and much more precise thanks to the help of technology. Technology is "making it much easier to alter prices in real-time using an algorithm," said NerdWallet, "and the availability of that resource has its appeal to businesses that hadn't previously been able to price based on real-time factors."

Indeed, said the Journal, "technology providers are pitching services that enable restaurants to change prices weekly or monthly, increasing or slashing the cost of a taco or sandwich between a few quarters to several dollars, depending on demand and sales patterns." 

These shifts in pricing can add up for restaurants that are looking to increase their revenue amid rising costs. For instance, said the Journal, one San Diego-based barbeque restaurant reported "that variable pricing attached online to the pulled-pork sandwich boosted the four-unit chain's $30,000 in monthly delivery sales by $1,500 since the company began testing it in early 2023."

How can you make dynamic pricing work for you?

While dynamic pricing is understandably frustrating, "'it doesn't take away the power of the consumer,'" Kimberlee Josephson, an associate professor of business administration at Lebanon Valley College, said to U.S. News & World Report. "At the end of the day, it is still up to the consumer to accept or reject the offer." 

While dynamic pricing can corner you into paying more, "it also creates an opportunity to milk the benefits," said NerdWallet — though you will need to "put the time and attention into" making that happen. This can mean committing to avoiding the mad dash and opting out during periods when you know demand is likely to be high, and instead saving your shopping or traveling for times you know will be less popular.

To better keep tabs on price movements, consider signing up for loyalty programs. These programs are "often accessed via apps" and typically "offered by grocery stores, airlines, hotels and fast food chains," said NerdWallet. And not only are they "a convenient way to keep track of price fluctuations," they "usually offer perks like points toward free items and small discounts for using the app to make purchases."