Decoding Dynamic Pricing Strategy

Abstract

The practice of varying the price of a product or service based on market conditions such as supply and demand and personal characteristics of the buyer has taken the e-commerce industry by storm. Known as a dynamic pricing strategy, this system of adjusting prices based on real-time demand and supply provides advantages and control to the company, but also has several ethical issues related to it. As a marketer, adjusting pricing based on customer demand and supply, the income of the customers, purchasing habits, and other demographic information such as age and location, seems like a lucrative strategy to increase revenue. However, how ethical is it for an airline to charge a frequent flyer more for a flight if the travel is for business and is paid for by the employer? How ethical is it for a service provider such as Uber to surge its rate depending on the real-time demand for its service? This case offers an overview of a dynamic pricing strategy from the perspective of both the companies and their customers, and provides some related ethical and legal implications.

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