In the Western world, it’s very common to accept an item or service’s price point as it is listed on the label, and haggling for an item is almost unheard of because of the universal pricing system present in most major markets today.
This is not the case in many countries and communities, as some cultures embrace haggling as a major part of their shopping experience.
In business circles, haggling is more professionally known as “situational pricing,” or “dynamic pricing,” wherein an item or service has a price set by the seller, however that price can change depending on who is buying the product or service, and at what price at which they are willing to purchase it. Unlike haggling, dynamic pricing gives the power to the seller in order to set the most appropriate price in order to make a sale.
One of the most popular examples of dynamic selling is with regard to airline tickets and hotel rooms. Essentially, the prices of the tickets or room stay at a flat rate for a certain period of time, until a set deadline approaches. Once that deadline hits, the prices can either increase or decrease, depending on how in-demand the tickets or room may be.
Changing conditions and the time of purchase define dynamic pricing, as they are very much at play in determining a product or service’s objective worth. A hotel room may go for $100 a night regularly, but if the Super Bowl happens to be held near that hotel, their prices will likely skyrocket as a result.
Situational pricing is a lot like the stock market, with value increasing and decreasing as demands are met and made. While situational pricing can be an effective way of increasing profits at certain times, it does take time and knowledge to price accordingly to demands, which typically involves research and up-to-date information on a product or services popularity among its audience.
While airlines and hotels have been benefitting from dynamic pricing for years, the practice is just now beginning to hit the retail market, with companies such as Amazon experimenting with its benefits.
Dynamic pricing is extremely beneficial when done properly, but there may be some drawbacks if customers feel they are not being treated fairly. If a customer feels they are paying a higher price for an item or service because of where they live, or because of their shopping habits, they will lose trust with the company, and potentially avoid shopping there in the future. This was the result of Amazon’s earliest attempts at dynamic pricing, and is something to be aware before attempting to include situational pricing as part of your marketing program.
For Shopify users, setting up dynamic pricing is fairly easy, once the research has been done. This can be done by using a service such as Wiser or Digonex to determine which prices should be set for which demographics, and the results should be tested before being implemented entirely.