In defence of dynamic pricing

Despite the extreme unexpected late-summer heat, I cycled across north London to the BrewDog bar in Camden Town and bought a pint of much welcome “Cold Beer” for a highly discounted rate of £3.05 versus the regular £6.55. 

There was method in my “mad dogs and Englishmen go out in the midday sun” madness because it meant I could benefit from BrewDog’s Beerometer. For each degree of heat above a base temperature of 20 degrees, the company was knocking 25p off the price. Having hit a peak for the day of 32 degrees when I arrived at the bar, I saved £3.50 on my beer.

This had been the second time the company had run the promotion, and the Camden Town bar had done some good business the first time around, according to the barman. But there was a lack of in-store promotion materials during my visit, even though the till systems were set up for the initiative. My prompt about the Beerometer relaunch had him clambering on to the bar to change the price of the beer list from £6.55, and this immediately attracted further custom.

Despite the operational and communicational hiccup, I very much applaud BrewDog for this playful promotional activity around price. During this cost-of-living crisis, one of the key levers hospitality businesses have is clearly price, but I’m wondering how many organisations are really experimenting with it in unusual and innovative ways – whether that be through price reductions to drive volumes or increases to bump-up margins?

One company that is certainly having a go is Stonegate, which has been hitting the headlines this week for its move to add 20p to a pint during peak times at 800 of its pubs. This follows the increased pricing it introduced for England games during last year’s World Cup. 

In the firing line: bar owner Stonegate

It’s disappointing to see so much pushback against the company’s actions, but it should have possibly taken greater care with communicating these moves and maybe offset the new increases by knocking 20p off prices during quieter times. Despite the misstep with its approach, it’s great to see Stonegate experimenting with dynamic pricing, and I hope its actions will give other businesses the confidence to follow its lead and combat the vocal naysayers.

Brewdog’s Beerometer is very much a form of dynamic pricing, but it is being done in an entertaining manner through gamification. Such innovation with pricing undoubtedly overcomes the public’s fear for dynamic pricing, which is invariably linked to costs rising and people getting ripped off. The sensitivity can be seen from activities at visitor attractions and their widespread adoption of high-and-low-season pricing strategies for school holidays and other peak periods.

In a survey by Convious and Baker Richards, only around 20% of people believe it acceptable to increase prices at busier times, whereas a hefty 60% find it acceptable for prices to be lower at less busy times. This would suggest many people quite like the idea of dynamic pricing, but only when it works in their favour and prices fall.

At the moment, there are too few examples in the market of innovative activity around pricing. One is Pesca restaurant in Amsterdam, where the fishmongers continuously decrease the price of the fish to ensure they sell out by the close of business. This way, it avoids unnecessary food waste.

The changing supply on the fish market varies depending on daily delivery, seasonal availability and weather conditions. It was a similar approach taken some years ago at Geales in London’s Notting Hill, where the blackboard listed fish prices at the point of the catch and showed its impact on the price of the dishes based on these raw material movements. 

Recently, cinema chain Vue announced it was accelerating the roll-out of flexible pricing across its outlets as it found growing demand from consumers. The company stated: “Price optimisation enables the group to offer agile pricing strategies to customers to optimise admissions and profit.” Sounds good for all parties.

Vue seems to be taking a page out of the playbook of Amazon, which uses various data points across purchase behaviour and market trends to change prices 2.5 million times per day. This has been linked to it increasing its profits by as much as 25%.

Clearly the hospitality industry is a world away from this scenario, but maybe now is the time for some bold thinking and greater thought being put into playing around with price. There are some serious lessons to be learnt from the approaches of both BrewDog and Stonegate, and I’m hoping their actions turn up the heat a degree or two on experimentation with dynamic pricing across the hospitality industry.

Glynn Davis, editor of Retail Insider

This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.