Dynamic and surge pricing explained

My wife and I went to Florida for the February school break. She likes to get away from the cold, but I love Rochester, where we live. The day before we left I cross-country skied in 22-degree weather, and the day we returned, I rode my bike in record 73-degree weather.

Why would you ever want to leave that?

Oh, those vacation fees

Before we turn to our main topic of dynamic and surge pricing, which we experienced twice, here are a few observations from our trip.

First, many “resort fees” are so outrageous that, if they were not so expensive, they would almost be humorous. Second, you really have to keep your head in the game at all times, and be prepared to advocate for yourself at every turn, in today's world of travel, or you will most definitely be financially taken advantage of, especially when you find yourself in a new situation.

So we took a train in South Florida for one leg of our journey. When we checked in to buy our tickets they said we had to check our bags at $10 each, bags that otherwise met the airlines' size and weight requirements. Later in the station, while we were waiting for our train, I saw a weight and size chart for required bag checking, which our bags did not exceed. So, when we got to our destination we had them reverse the charge. When we took the same train on the way back, we knew that we didn't have to check our bags, and told the staff that and about our prior experience.

Was it just a revenue thing for the train line? You decide.

Third, since I am that “cash is king” guy, who wants to stay in touch with my hard-earned money as much as possible, I paid for all of our meals and drinks with cash. The couple we were with preferred a card, so we would get separate checks. Naturally, I had some fun with it. I told the waiters and bartenders that I was using cash because I was trying to launder money. They all laughed, as if they knew exactly what I was talking about, even though they knew that I was just joking.

So let's turn to the currently hot topic of dynamic and surge pricing. Here is what my research revealed about it.

What are dynamic and surge pricing?

Dynamic and surge pricing are two flexible pricing models. Surge pricing is a form of dynamic pricing where prices increase temporarily at times of high demand. Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing, is a revenue-management pricing strategy in which businesses set flexible prices for products or services based on current market demands.

What is an example of surge pricing?

Wendy's menu pricing strategy

Wendy's, the country's second-largest burger chain with 6,000 locations, announced that starting next year, menu prices will fluctuate during the busiest times of day. That means you could be paying as much as a dollar more for that Baconater during the lunch rush.

Overall, surge pricing can maximize economic efficiency, because in theory, it matches a product with the person who values it the most. But companies have to do it carefully, especially if their customers aren't used to it, or else. When people see wild swings, it's perceived as price gouging.

Is surge pricing unethical?

The normal market response of “surge prices” or “price gouging” invokes sharp negative reactions by consumers who consider the profit-seeking market response to be unethical. Public condemnation often prevents merchants from following market signals, or induces governments to intervene by implementing price ceilings.

Surge pricing on vacation

So, these were our two dynamic/ surge pricing experiences in our travels.

First, the ticket price on the train we took was higher a week later than it was the week before.

We were told that it was “because there was more demand at that time,” even though when we got on the train it was not nearly full.

Second, when we paid to check our one bag on our fights to and from, the price was $10 per bag more than others were paying. We were told that they purchased their tickets earlier. We knew ticket prices are often less if you purchase them earlier (in part a cash-flow advantage for the airline to have the use of your money), but the baggage fee that you pay at the time of check-in?

Reader input

Finally, I want to share a few recent comments from readers with you. First, I have regular readers who tell me all the time that I need a new headshot, so I hope that you like the new one.

Second, maybe including this will mean that I won't have it happen again. I was at a cocktail party event talking with someone about student loan debt and college costs.

Another woman overhead the conversation and she joined in, saying that there was a great article about that very subject in the Sunday paper that morning. She proceeded to go on about the details of the article, as she referred to it. I looked at her and said, “You do know that that was my column, don't you?” She said that she reads it all the time, but never looked at the photo or who wrote it.

I guess that's the price you pay for being famous in your own community.

Third, a number of readers have told me that, yes, they see that “lifestyle creep” all around them all the time, even in their own families.

Fourth, many readers tell me that they are so glad that they were savers all of their lives, and are happy now that they are older and can do things they enjoy without having to go into debt.

Last, a woman said, I read and enjoy your column, and I am still learning. You think that you know everything, but then find out that you don't.

It is also nice to be reinforced for some of the financially smart things that you do.

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.