Demand based pricing has been the Holy Grail for marketers for some time. The idea is fairly simple. It's not new either. The concept aims to more accurately take the actual, local supply and demand atmosphere into account when pricing goods and services. This pricing scheme results in variable pricing for goods based on current demand. Put another way, things that used to cost a certain amount for all customers at all times would cost more or less, depending on the customer and the time of the transaction.
Much of this has existed for millennia and on the whole, we as a society accept this. For example, gas prices rise in the summer due to supply factors (summer formulations) and demand factors (holiday travelers). This is not new.
A new facet of this would be to add timing to the price mix. Perhaps gas is priced differently throughout the day and the week. As it stands currently, gas tends to be cheaper early in the week and during non-peak demand times. Frequent intra-day price changes tend to be used only by stations with electronic price boards.
We could add another pricing variable into the mix - buyer's urgency. This is the Holy Grail I mentioned earlier. Imagine a gas pump that could automatically analyze its customers and decide that it is vacation time, your car is fully loaded, you have an out-of-state license plate and that your tank is almost empty. How badly do you really want the gas?
Those aren't all achievable right now, but we could get there. The seller just needs more information. I was first introduced to the concept in college. A marketing article applied this concept to soda machines. It would be quite simple to install a computer in the drink dispenser that would read the ambient temperature and adjust pricing accordingly. Somewhat more futuristic, but still not beyond the realm of possibility, would be the machine's ability to "guess" the potential purchaser's level of interest. This could be accomplished by infra-red heat monitoring and perhaps the sweat level of the buyer's fingers as he selects his drink.
Price gouging you say? Yes indeed. That is the basic purpose of demand based pricing. That and “aligning scarce resources and reducing inefficiency in the market.” Sometimes we're ok with it and other times we are not. Increasing gas prices after a natural disaster could be perfectly legitimate or blatant profiteering.
Recent automotive related instances of demand based pricing include "congestion pricing". This is the plan in Dallas, where I-635 is being rebuilt. The system would include toll and non-toll lanes. According to the Texas Department of Transportation (TxDOT), the pricing on toll lanes "could vary with the level of congestion, time of day, occupancy or vehicle type."
Another recent demand based pricing scheme that caught citizens off guard affects those parking their vehicles in San Francisco. The San Francisco Municipal Transportation Agency will institute what it calls "demand-responsive pricing" in a two-year study. Sensors will feed data to apps and signs that guide drivers to open spots. The sensors also determine which parking spots areas are most appealing and increase the prices for those spots. The hourly parking fee can range from $.25 to $6.00 per hour.
Existing pricing and taxing schemes will likely change as more transaction related information becomes available. After all, we already have car insurance companies that install electronic readers in their customer’s vehicles to determine their insurance rate based on actual driving patterns. Stay tuned for more.
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