Airlines do it. So do hotels. Now other online retailers are playing with a profitable pricing tactic: changing prices by the hour--even by the minute.
The airline industry has never really been one many other businesses look to for pointers on strategy. But now companies in other industries are borrowing a tactic the airlines pioneered years ago: constantly raising and dropping prices based on real-time demand.
According to The Wall Street Journal, online retailers have enlisted the help of new algorithms and software to change prices throughout the day and stay competitive against rivals. As the Internet makes comparison shopping easier, online retailers want to know when it's better to charge less--even if only a penny less.
“In the age of the Internet, fixed prices are a thing of the past,” Oren Etzioni, professor of computer science at the University of Washington and co-founder and chief technologist at research firm Decide.com, told The Journal.
So far, businesses say constantly changing prices has been profitable. One business owner told The Journal that he uses software developed by Merchant Corp. to beat competitors. Merchant works with more than 400 brands, CEO Eric Best says, sometimes changing the price of two million products in the course of an hour. The most frequent changes are made to consumer electronics, clothing, jewelry, and household items, according to the article.
The price-changing game is especially lucrative on Amazon.com. Best told The Journal that when a vendor offers the lowest price on a product it is placed in site’s "buy box." The items in the buy box are chosen nearly 95% of the time by shoppers on the site, Best said. Once one vendor is sold out, the next best vendor can hike its prices due to increased demand.
"The long-term implication is that a price is no longer a price," Best told The Journal.