Dynamic Pricing: The Ethics of Getting It Right
Dynamic pricing is back in the headlines – and not in a good way. Uber's pricing algorithm, according to a recent Oxford study, is squeezing passengers harder while drivers see no benefit. So can businesses actually use dynamic pricing ethically?
What is Dynamic Pricing?
Dynamic pricing is where companies automatically adjust the prices of products or services in response to real-time market conditions, such as supply and demand, competitor pricing, inventory levels, and even customer behaviour. This approach leverages data analytics, artificial intelligence, and machine learning to analyse vast amounts of information and optimise prices accordingly.
When done well, it can deliver significant business benefits: Amazon reportedly saw a 25% profit increase from dynamic pricing, airlines optimise seat occupancy whilst offering competitive fares, and retailers can clear overstock whilst maximising revenue on high-demand items.
The Problem: When It Goes Wrong
It has been controversial as it means that people are paying different prices for the same service. This can lead to feelings of unfairness (and we all know people hate to feel ripped off), massive backlash and damaged brand reputation.
The Oasis concert tickets are a perfect example - fans saw prices jump from £148.50 to £355.20 mid-purchase, leading to a formal investigation by the UK's Competition and Markets Authority. Similarly, Coca-Cola's idea to charge more for cold drinks in hot weather was met with such outrage they quickly abandoned it.
The Opportunity: When It Works
Some companies have done it well. It's generally now accepted that if you want a ride-share at peak time you're going to pay more for it. Or that if you want a holiday in the school holidays it's going to cost you twice as much as in term time. People may not like it, but they understand it and have grown used to it.
The difference? Transparency, perceived fairness, and genuine value exchange.
The Challenge: Tech is Easy, Trust Isn't
With AI growing more powerful by the day, implementing dynamic pricing is becoming easier. But here's the thing - the technology is the straightforward part. The real challenge is doing it without damaging your brand or exploiting your customers.
Most businesses underestimate what's involved. You need sophisticated algorithms, robust data infrastructure, continuous monitoring, and - crucially - clear ethical guidelines. Get any of these wrong, and you risk customer backlash, regulatory scrutiny, or worse.
The Test: Five Questions Before You Start
So the question is, can you use dynamic pricing in an ethical way that isn't going to end up with your company receiving negative attention?
The answer is yes, but with important caveats. Ask yourself:
Is there really a good reason for this price difference? (e.g. incentivising taxi drivers to work during peak demand vs. simply exploiting concert-goers' passion)
Does this ever benefit the consumer? (e.g. cheaper flights outside peak periods, or off-peak gym memberships)
Is it based on a clear, transparent structure that customers can understand and predict?
Are vulnerable groups being disadvantaged or unfairly targeted?
Are you using people's data in a way that wouldn't stand up to public scrutiny?
If you don't have clear, confident answers to all of these, you need to rethink your approach.
The Final Test
The final question to always ask yourself is "if I were interviewed about this on the BBC, would my mum be proud?".
If the answer to that makes you feel a little uneasy, then you probably need to think more carefully about your approach.
Dynamic pricing isn't inherently good or bad - it's a powerful tool that can drive significant business value when implemented thoughtfully. But like any powerful tool, it requires expertise, careful planning, and a clear ethical framework to avoid the pitfalls that have caught out so many others.
If you're considering dynamic pricing for your business and want to navigate it with integrity, I'd be happy to help you think through the strategy and implementation.