Money Matters Margaret Dibben
On your holiday flight or train journey, did you dare ask the person sitting next to you how much they paid for their ticket? Probably not, because you risk appearing smug if you paid less than they did, or grumpy if you paid more. You are unlikely to have paid exactly the same amount.
We might not like it but we accept that airlines, in particular, frequently tinker with the cost of seats right up until the gates close. This is known as dynamic or real-time pricing. A computer automatically changes the prices, depending on how well or badly sales are going.
The idea of different prices for the same service or product is commonplace: holidays are cheaper during school term time; children pay less at the cinema. Phone calls used to be more expensive to make in the morning. Anyone who lives in a large house knows that workmen arriving to quote for a job will raise their prices before you open the front door.
But, these days, price discrimination is rising to new levels. The taxi firm Uber uses ‘surge pricing’ to charge more the moment it sees a lot of people calling up for cabs. The more desperate you are for a taxi, the more you are prepared to pay.
Sometimes you decide that you will voluntarily pay more – if you like a particular brand, need a service urgently or put a value on convenience. Today,
though, you can pay more without knowing it.
Retailers and financial institutions give much thought to their pricing structures, which are no longer a simple calculation of production costs plus a profit margin. The aim obviously is to maximise profits, and the internet has given them a powerful tool. Whenever you surf websites or shop online, you leave a trail of valuable information about what you buy and how much you are prepared to spend. By following your browser history, companies calculate how much you can afford and charge you accordingly. With dynamic pricing, the cost can vary, even according to the day of the week or the weather.
Banks are starting to embrace differential pricing, too. They used to take our loyalty for granted but, as they themselves have encouraged us to switch banks regularly, they have to accept that we choose accounts based on value and not just because we have been with them for years.
They talk of behavioural pricing, loyalty pricing and relationship-based pricing. Each is a slightly different approach but, essentially, they all use knowledge about customers to pick out those who are likely to pay more, and others who will buy more if the price is lower.
Behavioural pricing looks at your shopping history and sends you special offers based on what you have bought in the past. Loyalty pricing gives you better deals for staying with one institution – some banks have higher savings rates only for existing customers.
Now banks are looking at relationshipbased accounts to attract customers. One such is the packaged current account which rolls up several benefits, including cheaper overdrafts, travel insurance and car breakdown cover.
As technology becomes more sophisticated, they will learn even more about you, and dynamic pricing will target you ever more precisely.