Early last week, the CEO of Wendy’s announced that the burger chain intends to allocate close to $20 million toward implementing digital menu boards across all its company-operated restaurants in the U.S.
Thank you for those nuggets of pricing wisdom!! I especially like the tree showing the types of pricing schemes. I think there might be another pricing scheme that could be included in your tree: auction-based or bid-based pricing. The consumers could place bids for what items during what time window and the restaurant could let them know if they won the offer. Or, it could be flipped so that the consumer places the offer and local restaurants bid for their meal. Restaurants could even offer up inventory days or weeks in advance to ensure a base level of utilization and reduce over-stocking.
Good point. an auction type pricing was tried in the airline industry. As you can imagine, some people loved it. But most didn't like the uncertainty and ambiguity of it.
Is the German electricity market the best data on this? If so, why is this unbelievably consequential area of economics under-studied. If not, do the results differ across categories, cultures, etc.?
When firms implement dynamic pricing, what is the evidence say about how the value created is split between consumer surplus and firm profit or to serving consumers who were previously priced out of the market?
It's clear that predictability and transparency are important to consumers. There are so many situations where firms successfully use price opacity (obfuscation?) to extract profit -- e.g. resort and other fees not listed in sticker price of a hotel night -- that it's not irrational to doubt that dynamic pricing is more of a transfer of cash from consumer wallets to firms than mutual benefit.
Great article. ~20 years ago in B-school I was taught that perceptions of fairness drove resistance to dynamic pricing and updating with new evidence is helpful.
But I'm confused about the terminology you're using and some edits may help. The terms price-aware, price-sensitive, and risk-averse aren't clear and seem to overlap. Does "price-sensitive" mean individual price elasticity, a self-reporting of "I'm sensitive to prices," or something else? Could you clarify how consumer willingness to change usage in response to price, general risk tolerance, and consciousness of pricing influence acceptance of dynamic pricing. Without that understanding, it's difficult to understand which consumers prefer a plan that would benefit them economically or prefer one that wouldn't.
It's hard to summarize the entire paper, but its a combination of survey and usage data. I agree that the result about fairness is surprising given the literature, but I think they explain it nicely in the paper. Most of the literature on fairness of these prices didn't account for economic factors.
Thank you for those nuggets of pricing wisdom!! I especially like the tree showing the types of pricing schemes. I think there might be another pricing scheme that could be included in your tree: auction-based or bid-based pricing. The consumers could place bids for what items during what time window and the restaurant could let them know if they won the offer. Or, it could be flipped so that the consumer places the offer and local restaurants bid for their meal. Restaurants could even offer up inventory days or weeks in advance to ensure a base level of utilization and reduce over-stocking.
Good point. an auction type pricing was tried in the airline industry. As you can imagine, some people loved it. But most didn't like the uncertainty and ambiguity of it.
Is the German electricity market the best data on this? If so, why is this unbelievably consequential area of economics under-studied. If not, do the results differ across categories, cultures, etc.?
When firms implement dynamic pricing, what is the evidence say about how the value created is split between consumer surplus and firm profit or to serving consumers who were previously priced out of the market?
It's clear that predictability and transparency are important to consumers. There are so many situations where firms successfully use price opacity (obfuscation?) to extract profit -- e.g. resort and other fees not listed in sticker price of a hotel night -- that it's not irrational to doubt that dynamic pricing is more of a transfer of cash from consumer wallets to firms than mutual benefit.
Great question. We are just writing a paper about dynamic pricing in ride hailing and this is one of the main questions. Stay tuned!
Great article. ~20 years ago in B-school I was taught that perceptions of fairness drove resistance to dynamic pricing and updating with new evidence is helpful.
But I'm confused about the terminology you're using and some edits may help. The terms price-aware, price-sensitive, and risk-averse aren't clear and seem to overlap. Does "price-sensitive" mean individual price elasticity, a self-reporting of "I'm sensitive to prices," or something else? Could you clarify how consumer willingness to change usage in response to price, general risk tolerance, and consciousness of pricing influence acceptance of dynamic pricing. Without that understanding, it's difficult to understand which consumers prefer a plan that would benefit them economically or prefer one that wouldn't.
It's hard to summarize the entire paper, but its a combination of survey and usage data. I agree that the result about fairness is surprising given the literature, but I think they explain it nicely in the paper. Most of the literature on fairness of these prices didn't account for economic factors.