Dynamic pricing, powered by artificial intelligence (AI), is a transformative approach that adjusts prices in real time based on demand, supply, and market conditions. It’s a technique that can maximize revenue by optimizing pricing at every moment—a mouthwatering utopia to capitalists. But, as the recent backlash involving Oasis and Ticketmaster shows, just because technology makes something possible doesn’t always mean it’s the best route. Dynamic pricing is powerful, but its misuse can severely damage brand reputation.
So what exactly is it, what are the pros and cons, and how can marketers strategically approach this AI-driven tool?
What is AI Dynamic Pricing?
Dynamic pricing is a strategy where the cost of a product or service fluctuates based on real-time demand, customer behaviour, or other market factors. Airlines, hotels, and e-commerce retailers widely use it. This AI-powered pricing model monitors variables like competitor prices, inventory levels, and even time of day to adjust prices accordingly.
For instance, airlines raise their prices when demand surges for certain flight routes, capitalizing on increased interest. Retail companies like Amazon adjust prices on thousands of products daily to stay competitive and maximize profits.
While this strategy has proven profitable for many businesses, it’s not without challenges—especially regarding customer perception.
(Hoping You) Don’t Look Back in Anger: The Oasis Dynamic Pricing Debacle
Recently, Oasis fans were caught in a whirlwind of frustration when Ticketmaster applied dynamic pricing to their ticket sales. Fans reported massive price surges when buying tickets, with some prices skyrocketing beyond what the average concert-goer could afford. Ticketmaster’s use of dynamic pricing, powered by AI, led to a wave of complaints and negative media coverage, with many calling for refunds and accusing the band and Ticketmaster of gouging their most loyal fans.
The backlash was swift. Not in a Taylor kind of way, but we’ll come to that. Fans felt alienated, and it wasn’t long before the media picked up on the outrage. Although dynamic pricing helped Ticketmaster and the perpetually duelling Gallagher brothers maximize profits, the potential long-term damage to Ticketmaster’s reputation and the loyalty of Oasis’ fanbase was considerable.
Sure, Oasis might take the money and run—they’re a nostalgia act that’s not planning to make any more records and can afford to burn a few bridges. Liam, of course, told the Oasis faithful to “shut up,” which checks notes isn’t exactly a textbook crisis management response. Then again, his words are printable, so clearly, he has mellowed with age. But next time they want to refill their coffers, or extend their tour outside of the UK and Ireland (if they can tolerate each other that long), maybe the fans won’t be as keen to cough up.
Shake It Off: Taylor Swift’s Stance Against Dynamic Pricing
On the other side of the spectrum, Taylor Swift (and proud ‘Childless Cat Lady,’ as she now refers to herself) made headlines by deliberately choosing not to use dynamic pricing for her tours. Swift has long been known for focusing on maintaining a strong relationship with her fans, and she likely recognized that dynamic pricing could lead to negative sentiment.
Instead of allowing prices to surge with demand, she opted for a fixed pricing model (not to be confused with price fixing—Swift may have Bad Blood, but she’s no criminal mastermind). Fans knew exactly what they would pay, and as a result, Swift was praised for prioritizing her relationship with her fanbase over maximizing ticket revenue. Her decision resulted in goodwill and maintained her image as an artist who cares about her fans, reinforcing brand loyalty.
Unlike the Gallaghers, who seem fine ruffling feathers, Swift’s savvy enough to know that alienating fans isn’t a sustainable strategy.
The Power and Pitfalls of Dynamic Pricing
As seen with Oasis and Taylor Swift, dynamic pricing has the potential to drive significant revenue but also comes with risks. When used effectively, it can be a powerful tool to optimize profits and respond to real-time market conditions. However, if not handled carefully, it can alienate customers and damage your brand.
So, does dynamic pricing rake in the cash or leave you scrambling to clean up a PR disaster? Let’s break down the pros and cons.
Advantages of AI Dynamic Pricing for Businesses
Maximized Revenue: When demand is high, businesses can charge more without losing sales, which can significantly boost profits.
Real-Time Market Responsiveness: Companies can quickly react to market changes. Whether it’s a competitor offering a discount or a surge in demand, AI can automatically adjust prices to keep your business competitive.
Optimized Inventory Management: For industries like retail or airlines, dynamic pricing helps manage inventory. By dynamically raising or lowering prices, businesses can ensure their inventory is sold, which is particularly important if it’s perishable.
Enhanced Customer Segmentation: AI-driven pricing allows businesses to offer personalized prices to different customer segments. For example, frequent buyers or loyalty program members may receive discounts, while one-time purchasers see higher prices.
Disadvantages of AI Dynamic Pricing and Risks to Brand Loyalty
Customer Backlash: As seen with Oasis, dynamic pricing can lead to customer frustration, especially when loyal customers feel taken advantage of.
Complexity in Communication: Dynamic pricing can create confusion among customers, especially if prices change drastically in a short period. Customers may not understand why prices vary without proper communication, leading to negative perceptions.
Perceived Unfairness: When customers see prices fluctuate based on demand, they may feel that they are being manipulated or overcharged. This can be especially damaging if they find out that someone else paid less for the same product or service.
Long-Term Brand Damage: When customers perceive dynamic pricing as greedy or exploitative, it can lead to long-term brand damage, particularly in industries where customer loyalty is vital.
How Marketers Can Use AI Dynamic Pricing Responsibly
Dynamic pricing is undeniably powerful, but marketers must weigh its advantages against potential risks. Here’s how businesses can use it wisely:
Know Your Audience: Before implementing dynamic pricing, assess your audience. Will they tolerate fluctuating prices, or are they likely to feel betrayed? Understanding your customers’ expectations is critical.
Transparency is Key: If you’re using dynamic pricing, communicate it clearly. Customers are more likely to accept price changes if they understand why they’re happening. Be upfront about factors that influence pricing, such as demand or inventory levels.
Strike a Balance: Dynamic pricing doesn’t have to mean price gouging. Some businesses use it subtly, offering small price fluctuations that reflect demand without creating sticker shock. This approach maximizes revenue without alienating customers.
Consider Long-Term Brand Impact: Think beyond immediate profits. How will dynamic pricing affect your brand in the long run? Consider whether short-term gains are worth potential backlash if your business relies heavily on customer loyalty.
Leverage AI for Personalized Offers: Instead of focusing solely on increasing prices during high demand, use AI to offer personalized discounts or promotions to loyal customers. You can create a sense of exclusivity and maintain goodwill while still optimizing revenue.
Live Forever: Dynamic Pricing Isn’t Always the Answer
When used effectively, dynamic pricing can be a powerful tool for maximizing profits and staying competitive in a fast-paced market. However, the stories of Oasis and Taylor Swift illustrate how this strategy can backfire when businesses fail to align it with customer expectations and brand values.
Marketers: play it smart, or you might not Live Forever—at least, not in your customers’ good graces. While AI offers incredible new capabilities like dynamic pricing, balancing these capabilities with a deep understanding of your customer base is essential. Maintaining customer trust and loyalty may be more valuable than squeezing every last penny from a sale.
By focusing on transparency, fairness, and long-term brand health, businesses can harness the power of AI-driven pricing without damaging their reputation.
The 2 cents of a Child-blessed Dog Gentleman.