BY NOW, PRETTY much everyone is familiar with how dynamic pricing works.
In a nutshell – when demand for a product is high, the price of the product can be raised.
Airlines and hotels are the most obvious examples. While a flight could cost €100 several months away from the departure date, a week before with most of the seats sold, that same flight could now cost €200.
This should mean prices also drop at times of lower demand, although this aspect tends to get less attention.
Technically ‘dynamic pricing’ has always existed in some form – think of happy hours in pubs, or supermarkets discounting food close to its expiry date.
But the one most people have in mind these days – and the one we’ll discuss – is electronic dynamic pricing.
This is typically when large companies feed an algorithm with massive amounts of data, so the algorithm can automatically adjust prices on the fly.
Essentially – anyone who has booked a hotel or a flight should be familiar with how dynamic pricing works.
But if consumers are familiar with the concept, they may be unaware of its creeping presence in other industries.
Tens of thousands of Oasis fans got a nasty shock recently when the model was used in the sales of the band’s tickets, which resulted in prices doubling to more than €400.
But it’s not just leisure and entertainment.
At least in theory, dynamic pricing means companies make more money, as they can get more for their products when demand is high.
Money-hungry owners are not limited to hotels and airlines, and lots of other industries are probing the use of dynamic pricing
Case in point – supermarkets.
Grocers, even profitable and successful ones, operate on relatively thin margins, normally under 5%.
This means that for every €100 of goods they sell, they take in €5 in profit.
In fact, such a margin would likely be considered excellent, at least in the Irish grocery sector.
For example, Aldi Ireland, one of the country’s biggest and most successful supermarkets, had sales of just under €2 billion in 2020, when it got a big pandemic-fuelled boost.
It recorded a pre-tax profit of €72 million, giving it a margin of about 3.6%.
Keep in mind, this was during one of its best ever years. In 2023, sales at Aldi Ireland were slightly higher, at €2.03 billion. But hit by inflation, profits were substantially lower, falling to €17.4 million.
Aldi Ireland itself has confirmed it is not planning on introducing dynamic pricing.
But the point of looking at its numbers is to show that the grocery business is a tough game, and companies will look to boost tight margins in any way they can.
So it makes sense that at least some firms in the sector would be interested in dynamic pricing.
While the practice is still uncommon in supermarkets, some have become early adopters.
One of the first to have gone all in is a chain called Rema 1000, which has almost 700 locations across Norway.
The company uses dynamic pricing to constantly adjust the cost of its products. A range of data is factored in, including comparing competitors’ prices to its own, to make real-time price adjustments.
Electronic labels are standard in its stores, which means prices can be automatically updated by the company’s algorithm.
There are a few quirks to how Rema 1000 uses dynamic pricing. It has recognised that consumers don’t want to feel like they’re getting stiffed if they put an item in their cart at an advertised price, but then by the time they get to the checkout, the cost has changed.
So while the supermarket is open, prices only go down. Increases happen overnight.
The supermarket also made the concept of dynamic pricing sound more benign, giving the example where a product is discounted by 20 cents to keep the company’s products cheaper than those of its rivals.
But a key point made by the firm is that this strategy has been made possible through a crucial piece of technology – the electronic labels.
While supermarkets – besides a few like Rema 1000 – have been quiet about the possibility of using dynamic pricing, they’ve been a lot louder about electronic labels.
For example, in June, Walmart announced it would roll out electronic labels at 2,600 of its stores.
This was framed as a way to improve service – Walmart said the move would eliminate the need for staff to spend time changing paper tags “by hand, giving us more time to support customers in the store”.
It also listed other nice positives, such as “reducing waste” and making it easier for workers to manage stores.
Business figures were a little more hard-headed about the possible implications of Walmart’s move.
Phil Lempert, a grocery industry analyst, told NPR: “If it’s hot outside, we can raise the price of water and ice cream. If there’s something that’s close to the expiration date, we can lower the price — that’s the good news.”
That approach would be a bit further away from Rema 1000’s overnight updates strategy, and closer to the negative image of dynamic pricing most people have.
Other analysts have said this kind of ‘surge pricing’ could be a risky strategy, potentially upsetting long-term customers and pushing them into the arms of competitors.
But at the very least, it gives the supermarkets the ability to do it.
Electronic labelling is moving closer to Ireland – in some cases, it’s already here.
Plenty of UK supermarkets are trialling the technology, including the likes of big chains such as Asda.
Perhaps most interesting from our point of view – Lidl, one of Ireland’s biggest grocers, is set to move exclusively to electronic labelling in the UK.
The reasons given were similar to those cited by Walmart – it said reduced paper would be more environmentally friendly and would also give staff more time to attend to customers.
The company has given no indication as to whether it’ll also roll out electronic labelling in Ireland.
While we did ask, the company had not responded to a request for comment at the time of publication.
For the record, we asked all the five chains which dominate the Irish grocery market – SuperValu, Dunnes, Lidl, Aldi and Tesco – if they had any plans to introduce electronic labelling or dynamic pricing.
The only one which responded was Aldi, which said: “We don’t have any plans to introduce dynamic pricing in Ireland.”
Interestingly, the company did reveal that it has moved to electronic labelling in Ireland, saying: “Aldi Ireland operates electronic shelf labels in place of traditional paper price labels.” It said this was to ensure that prices are “accurately and easily communicated” to customers.
While Aldi may not have plans for dynamic pricing, companies that do will likely keep quiet about them.
The term has now taken on a negative connotation – something fast-food chain Wendy’s discovered when its CEO revealed earlier this year that the firm planned to test dynamic pricing “as early as 2025”. Following a massive consumer outcry, Wendy’s insisted it had no plans to raise prices based on demand.
But even if businesses are not using it in the conventional ‘surge pricing’ way that most consumers think of when the words ‘dynamic pricing’ are mentioned, the concept is being examined.
Electronic labelling will likely become the standard in Irish supermarkets. Once that happens, dynamic pricing is a possibility, and supermarkets are likely to at least examine the concept.
This doesn’t necessarily have to mean the dystopian version of dynamic pricing that most people think of. In Norway the move has ruffled relatively few feathers, with no reports of sudden, gigantic ‘surge pricing’ incidents.
As mentioned earlier, the grocery market is one of the most competitive sectors there is. Consumers in most areas are willing, able and motivated to change where they shop if a product is significantly more expensive in one outlet than another.
But those with more limited options will likely be more wary of the possibility of dynamic pricing. And businesses are businesses – at the end of the day, the bottom line is the most important thing.
Even if there aren’t major cost surges, consumers should keep their wits about them.
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