Maximizing value with Dynamic Pricing and Behavioral Science

Dynamic pricing / variable pricing has been with us for a long while. From pubs drawing in customers at less busy times with a "Happy Hour" to 10% discount for OAPs on a Thursday afternoon diverting some customers that might otherwise shop during a busy period. It's usually always sound business sense to find ways to generate extra custom and increase profit. What's relatively new is the increase in surge pricing where there's a premium for peak time.

What is Dynamic Pricing and how does Behavioral Science help maximize value

In the case of a pub happy hour by getting those customers earlier than normal and on a different day would likely increase trade where there might have been none rather than merely transferring custom from one time/day to another. Also by starting earlier, some will no doubt stay and spend more.

Discount for seniors is more complex and the value less certain. Some of the benefits include:

• Time shifting customers away from busy times;
• Attracting customers from rivals;
• Altruistic;
• Virtue signalling.

Offering a discount almost always has an element of time shifting, each store has the opportunity to assess effectiveness and act accordingly.

Staff may be offered overtime for working extra hours during busy times, though that has seen significant reductions in recent years. Agency and contract staff are usually paid more than regular employees in exchange for less security. Nurses and clinical staff are usually in high demand though surprisingly Doctors have seen their opportunities reduced.

Want fast delivery, pay more. Private taxi hire at peak times can include surge pricing. This has been normal for a while and is accepted as normal practice.

Issues with Dynamic Pricing

The recent furore with Oasis tickets demonstrates that Dynamic Pricing benefits from a Judgement call rather than just a spreadsheet to maximize value.

Retailers and customer facing services are at pains to ensure their customers perceive they're getting good value. There's always tension in FMCG pricing and constant changes as margins are often paper thin and there's usually choice and competition from alternative retailers.

Customers are often suspicious and polygamous buying some things from one shop and others from somewhere else. If you're doing a regular large shop where your time is more valuable then convenience suggests you're likely to buy from a larger supermarket. There's stiff competition between retailers but you have to be caught out doing something awful for it to make much difference, and even then, time, contrition and advertising will usually win customers back.

It's fascinating what people are grateful for and what they get pissed off about. Some are happy to pay £150-250 for designer sunglasses from Sunglass Hut at the airport, yet they get pissy about flights that cost £50-100, some are happy to pay £150+ for getting their hair done whilst at the same time rarely pay more than £5 for a bottle of wine. There's anecdotal evidence that customers rarely if ever regret extravagances.

Despite the many issues, dynamic pricing has largely been accepted and is a normal part of commerce.

Oasis Live '25 Tour tickets

Despite Ticketmaster having significant experience in their field, excessive demand for Oasis ensured eye-watering prices far in excess of expectations. For example Abba in 2024 can be bought from £80-£190, the five day Glastonbury festival is £355, Wicked playing at the Apollo Victoria ranged from £25 to just under £200 for September to the normally high season of December 2024.

The price of Oasis Live '25 Tour tickets exceeded expected demand and surged by £200 to, in at least one case, £355 and brought significant pushback.

As a venue's costs are known upfront and largely fixed, it's clear that the artists and promoters get a significant proportion of any excess due to dynamic pricing. Ticketmaster's aim is commendable in maximizing the number of filled seats. It may also not set pricing policy, though with its existing knowledge and pricing frameworks it's clearly responsible for advising the artists and promoters who do.

Comments from fans who bought tickets included:

• "I find that just disgraceful";
• "But when you've queued all day and the price of the ticket has more than doubled, I just think they've broken their contract with the working class";
• "They're pretty dead to me now".

Past evidence shows mistakes in business are forgotten and any negative impact will dissipate in a relatively short space of time. But Oasis, despite being a business, are also individuals, and it's that personal relationship that matters.

Oasis built their career on the connection they built with ordinary folk. Only time will tell if this incident will affect long term sales, but unlike businesses, relationships with pop groups are personal with a bond forming between individuals.

For similar reasons many pop stars protect their brand and ensure their songs aren't associated with political parties or individuals that aren't in keeping with their image and beliefs.

Managing prices

Pub landlords can assess if a Happy Hour is bringing in extra business or merely time shifting existing business and adjust times, discounts or withdraw as necessary.

Shops with discounts for seniors may be harder to assess, nevertheless it's not too difficult to quantify time-shift, competition and the value of those discounts. Non senior customers appreciated generosity and it has a tangible value.

Intervention/Regulation?

Although the British Competitions and Markets Authority (CMA), whose role it is to promote competitive markets and protect people from unfair trading practices is “urgently reviewing recent developments in the ticketing market”. A spokesman said “Consumer protection law requires businesses to be fair and transparent in their dealings with consumers, and businesses must give clear and accurate information about the price people have to pay. Failure to do so may breach the law."

In my opinion, any intervention will be minor and technical; there may be monopolies but it's the limited number of Oasis performances that is the monopoly here and created the demand.

The Future of Dynamic Pricing

Dynamic Pricing is a viable and valuable behavioral tool to maximize value and in the case of ticketed events reduce the take from touts, but beware, ticket touts are known for profiteering and there's a clear distance between them and the artists they're selling access to. If fans believe Ticketmaster or the artists and promoters have crossed that bridge then their integrity will have been compromised. Does trust return after such an incident? If one side betrays trust, does it fully return? How many couples re-unite after a break-up?

No one wants to leave money on the table, but fully maximizing prices or price gouging as it's pejorative known can clearly have a material negative brand impact.

It's notoriously difficult to replicate a judgement call at scale with an algorithm. Nevertheless, this is a useful learning exercise. Oasis may have paid a high personal price, only time will tell if there's any lasting damage, but it's a useful case study with tangible results to inform and refine those algorithms. It will be interesting to see what guardrails, maximum price guidelines and guidance notes are put in place in the following months and years.