This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
Before retailers put fixed price tags on their goods, it was common for people to haggle over the value of the goods. This often ended in a dispute and an inefficient economic result: one person, person A, was ultimately able to haggle better than person B – but under normal circumstances would have paid significantly less because person A actually needed the goods more than B. And so they sat down fixed prices as standard – the price at which the company has at least covered its costs, although there are exceptions here too. Fixed prices also offer planning security for companies.
To a certain extent, there has been a softening here in recent years. In many supermarkets and electronics stores, prices on electronic signs already change hourly – and air transport in particular is known for its highly dynamic prices. The prices are based on demand – and are fed by data.
But these “dynamic prices”, or “second-degree price discrimination” as economists call it, are now appearing in more and more areas – and not just where data is the business model. Now even the world’s leading operator of theme parks has announced that in the future it will vary its entry prices depending on the time of year.
By the end of 2024, the top 20 attractions worldwide will move to a dynamic pricing model, said Merlin Entertainments boss Scott O’Neil to the Financial Times. These include Legoland, Sea Life and Madame Tussauds. Amusement parks in the USA are to follow the following year. Europe’s largest operator of amusement parks wants to charge more admission on summer weekends than in the off-season.
The “very intuitive” pricing model is designed to respond to ups and downs in demand using artificial intelligence (AI), explained O’Neill. “If it is sunny and a Saturday during the peak season in August in the UK, then you would expect higher admissions than on a rainy Tuesday in March.”
When booking flights and hotel rooms, consumers have long become accustomed to the fluctuations of the dynamic pricing model: those who book early, in the low season, or last minute get a good deal. There are disadvantages if you decide late or during peak travel times. However, the cheaper proliferation of AI and learning algorithms makes the adoption of the flex pricing model attractive in a growing number of consumer industries.
Some experts estimate that the principle will eventually apply everywhere. The online retailer Amazon changes the prices of its products every ten minutes on average and uses millions of real-time data to track peak demand as it competes with the competition. A study by the Massachusetts Institute of Technology (MIT) showed in 2018 that flex fares improved airline revenues by between one and four percent compared to standard fares.
The dynamic pricing model appears to be most widely used in retail in the USA. According to specialist software providers, Europe is still lagging behind in application, with more than one in two retailers in the Nordic countries already operating with flex prices – but fewer in countries such as Germany, Austria or Great Britain.
In the music business, for example, international stars have already angered concertgoers with unpredictable prices – such as Bruce Springsteen on a US tour in 2022, when tickets climbed to $5,000. Fans who got concert tickets for tours by Beyoncé, Coldplay or Harry Styles from Ticketmaster also publicly vented their frustration about suddenly double ticket prices. In the US, fast food chain Wendy’s faced headwinds when it tried dynamic pricing models.
Essentially, companies with flexible pricing can quickly respond to changing customer preferences and adjust prices accordingly. For example, if a particular product or service is in high demand due to a viral trend, prices may be increased to accommodate the increase. Sales potential can be optimized by analyzing market trends and identifying peak demand periods.
According to O’Neil, Merlin Entertainments has to react to the low visitor numbers since the corona pandemic. The group recently reported record revenues of 2.1 billion pounds for 2023, eight percent more than in the previous year, mainly thanks to the strong influx of international visitors to metropolises such as London. Overall, ticket sales in 141 attractions in 23 countries with 62 million customers were up 18 percent, but still below the 67 million recorded in the pre-Corona year of 2019.
Retail experts recommend marketing price fluctuations better than discounts – after all, you don’t want to scare away customers, but rather retain them. So Legoland visitors can look forward to bad weather discounts in the future.