- [Narrator] On a Monday at 3:00 PM
outside of rush hour traffic,
a car from Times Square to Central Park in New York
might cost you around $17.
Now, fast forward three hours.
As more people are looking for cars,
that same ride might cost closer to 24.
If you've taken a trip like this, or bought a plane ticket,
you know to expect big price swings based on demand,
time or location.
But did you know that those price swings
are happening all over the economy,
and often in places where you might not expect,
like on your laundry detergent or even a blouse.
These changes are part of a high tech
and fast spreading strategy called dynamic pricing.
And as prices around us are rising
faster than they have in four decades,
to understand why things cost what they do,
you have to understand how it works.
Dynamic pricing is a strategy businesses use
to change their prices automatically
and ensure that they are offering the optimal price
at any given moment in time.
- And that basically means that
they're varying their pricing
essentially based upon market conditions.
So things like cost, what their competitors are doing,
and even demand.
- [Narrator] Because those factors can change quickly,
some businesses are updating prices more often.
In February, 75% of retailers on Quicklizard,
a pricing software platform,
said they increased how often they update their prices
in the last year.
So where can you spot dynamic pricing
other than ride share companies and airlines?
You probably recognize it with gas prices,
where the price of a gallon can change daily.
Or on Amazon, which has been using
dynamic pricing for years.
Their changes are usually less noticeable,
but they allow Amazon to determine
the most competitive price for everything
from electronics to household items.
For example, here's the price of these Tide pods
over a day at the beginning of April.
In the morning, it hit 21.49.
By noon, it dropped to 21.24.
And by evening, it had dropped even lower to 19.99.
A spokesperson from Amazon said
the company's prices fluctuate so they can meet
or beat the lowest competitive price from other retailers.
But this is what dynamic pricing looks like in action.
And you may start seeing similar strategies
in brick and mortar stores, too.
Chains like Kohl's and Best Buy have rolled out
electronic price tags,
some of which almost look like paper price tags,
making it easier and quicker to change the price on,
say, a display of televisions.
- All right, so I'm at Best Buy and they got Lego,
and that's cool and all, but check it out.
They're moving to all digital price tags.
- [Narrator] And the supermarket chain Kroger
has tested digital labels that can change prices on items
in seconds.
But seeing these frequent price changes in stores
can be surprising for customers.
- If you chat with someone who's in the grocery store
on a week to week basis,
they know how much they're paying for a dozen eggs.
They know how much they're paying for a gallon of milk.
They know how much they're paying for,
you know, their fruits, their vegetables.
And when those types of prices change,
people can be very resistant and it can be a big turnoff.
- [Narrator] But under certain conditions,
companies are willing to take the risk.
- Companies will go to dynamic pricing
when more traditional ways of pricing
are no longer working for them.
So maybe they have previously changed their prices
once a quarter, maybe once a month.
And they're starting to notice that their costs
are shifting so much throughout the month or the quarter
that their margins are getting squeezed
more than they would like.
- [Narrator] When most businesses decide
to start using dynamic pricing,
they use software to track various factors.
- There will be a range, a huge number of algorithms,
whose role is again to mimic the choices that humans make.
But because it's being done in an automated way,
we're able to set prices much more frequently
or much more granularly than if you're doing it
without the automation.
- [Narrator] A dynamic pricing algorithm
for a gas station might look at the cost of fuel,
competitor prices and alternatives
that customers might have.
- What dynamic pricing would allow me to do
is instead of having, you know,
a single point of view that is driven by the price of crude,
I actually could have a very granular point of view
on individual competitors and what my delivered cost is
of the fuel, and then execute those price changes
on a very frequent basis.
- [Narrator] But that algorithm might look different
for a grocery store.
They might look at competitor prices,
but they also might consider cost of goods
and what they know customers are willing to pay more on.
But even if a business uses dynamic pricing,
those rules might not affect everything you buy there.
- There are a few exceptions where prices are largely fixed
and they're actually being set by the manufacturer.
Examples of that would be jeans,
there's certain types of sneakers or athletic apparel
where the manufacturer also sets the prices.
And then prestige cosmetics is a third
where you see a lot of manufacturer set pricing.
But beyond that, where the retailer is actually
able to set their price, you know,
dynamic pricing can be applicable across the store.
- [Narrator] As more companies use dynamic pricing,
you might start noticing it more often,
especially during periods of inflation,
like the one we're in now.
- You could be, you know, visiting a store that has been
using dynamic pricing for a long time.
But now you're noticing that the prices of things
are changing a lot.
And that's not because they're doing something different.
That's because the inputs are changing more frequently.
- [Narrator] The adoption of dynamic pricing
is expected to continue,
and mom and pop shops and local retailers
are starting to experiment with it
as well as big box stores.