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Episode 7: Dynamic Pricing in Non-Traditional Retail: Groceries, Restaurants & Entertainment

Podcast Episodes-04-2

About this Episode

Dive into dynamic pricing in Episode 7 of the Retail Pricing Insights Podcast. Join guest Jose Mendoza as he explores dynamic pricing in Grocery Retail, Gastronomy, and Entertainment. Discover the technology driving these strategies, their impact on consumer behavior, and company profitability. With a focus on clear communication, technology integration, and balancing consumer value, this episode offers expert advice on mastering dynamic pricing in non-traditional industries.

Meet Our Speakers

Get to know our speakers and their experience

Jose Mendoza

Clinical Associate Professor at NYU
Dr. Mendoza has a background in computer engineering, he is fascinated by the intersection of economics, psychology, and technology, which fuels his expertise in pricing strategies.


Want to read the transcript of the podcast?
Welcome to the Retail Pricing Insights podcast by 7 Learnings. My name is Nicolle Leistenschneider and I will be your hostess for today. Today I am excited to share our seventh episode. In each episode we delve into the complexities of pricing, joined by industry experts who offer invaluable insights. Together, we uncover trends and share actionable strategies to keep you ahead in the competitive retail arena. Before we delve into todays episode. I would like to talk about our Dynamic Pricing Community. If you are looking to elevate your pricing game and connect with like minded professionals then go ahead and join our dynamic Pricing Community. Before we dive into today’s episode,I would like to talk about our dynamic DPC… If you are looking to elevate your pricing game and connect with like-minded professionals then go ahead and join our dynamic Pricing Community (DPC). Our invite-only community brings together retail pricing practitioners, enthusiasts, and experts together, offering a unique platform to network, learn, and collaborate with the best minds in the field. So, if you’re ready to take your pricing strategy to the next level, seize the opportunity to join our Pricing Community today. Apply now through the link in the episode description and become part of a vibrant community dedicated to advancing retail pricing excellence. Today, we’re honoured to welcome Dr. Jose Mendoza, an Academic Director, Clinical Associate Professor at NYU. NL:  Thank you so much for taking your time to be with us today. And also it’s an honor to have you on our show as you are part of our. Dynamic pricing community. And we like for our members to be always actively joining on our events, on our webinars, and of course, on our podcast today. JM: So congratulations for it. NL: Thank you so much. So I think we can start with an icebreaker question and that our audience know a bit more about you. So my first question would be what inspired this journey into the world of pricing and what led you down to this business path?  JM: But I’m currently a clinical associate professor at New York University or NYU. Like everybody call it, I’m also the academic director of the masters in, integrated marketing. My yearning toward pricing was inspired by this fascination. intersection of economics, psychology, and technology. I have a computer engineering background and I move it into marketing. So that I really like this combination of technology which I understand. But then I’m intrigued by the power and the, and the depth of psychology in our life as consumers, of course, economics and business, which is that that’s the area where we are now. NL:I believe that pricing, this is. Powerful labor in a business strategy that can impact consumer behavior on the one hand, but then on the other hand, company profitability. So it’s one of these is the most important, in my opinion, valuable in the marketing mix as it impact profitability directly. JM: So one of the challenges I found in pricing is this idea of the optimal price point that will maximize long term profitability. But then on the other hand, trying to balance this consumer value perception and that equation is very interesting. There is a lot of work. That has been done in pricing, but yet there is a lot of work to be done NL: marketing and pricing, they go hand by hand and it’s super important to put on optimal prices. So for today’s topic we will be talking about applications of dynamic pricing in non traditional industries, such as grocery retail , restaurants and also theme parks. So I wanted to ask you overall, what is the significance of dynamic pricing? And how does it differ with, a non traditional retail? What, what do you mean with non traditional retail?   JM: Traditional are those industries where the dynamic pricing has been for a while. Like, for example, Airline pricing is known by using revenue management software and dynamic pricing. And there is a consumer acceptance in in that regards. In ground transportation, like for example with Uber and Lyft, we also call that traditional, even though it’s not, it’s a recent development, but Consumer seems to be accepting dynamic pricing internet retailing or e commerce also you know, like with the cases of Amazon, now we call non traditional industries. This industry where there is a new venture of dynamic pricing into the industry. Like, for example, we’re talking about, , you mentioned a theme parks. You mentioned grocery retailing. I mean, you mentioned it, traditional retailing and traditional retailing, at least in the U S is a 1. 5 trillion business. So it’s a huge business opportunity there. And retailers and marketers alike are trying to crack the code. On how to do the best implementation of dynamic pricing in this brick and mortar or non traditional industries, put it this way. Now, you also mentioned about the significance of that. Given by the fact that businesses can adjust. Prices in near real time based on, , market demand competition, but also external factors. I call them contextual factors, like, for example, time of the day, the weather pattern, , external circumstances, which has the location of the customer or data that the retailer has about the customer. And now flexibility of be able to adjust prices in near real time can lead to increased revenue, better inventory management. But what’s more important, it can also bring, you know, the opportunity for personalized pricing strategy. It can bring the opportunity for increasing the customer or enhancing the customer experience if the dynamic pricing implementation is well done.   NL: Yeah. You mentioned that it was a 1. 3 trillion and dollar industry in the U S can you maybe explain to us, like how has a dynamic pricing been evolving during the past few years, particularly in the non retail industry? JM: just basic supply and demand adjustment, , using algorithm for managing demand managing different type level of demand, different level of supply, just for maximizing and optimizing inventory management, for example. But now that evolving into other areas, like, for example, with the use of artificial intelligence and machine learning in dynamic pricing, now we have the opportunity to analyze competitor pricing to be able to personally offers to individual customers. So, now we’re moving into just using dynamic pricing for managing capacity, like, for example, in an airline industry, it’s a capacity management problem where you want every seat of the airline to be filled, or at least the majority of the seats. Seating the airline to be filled and at a higher price point, you know, with a, with a higher revenue per, per flight or per seat, depending on how you do your calculations in the hotel industry alike is also about capacity management where we talk about concerts or feeling the stadium because we have a sport event, we have a similar situation where we have a fixed capacity and we want to maximize the revenue. So that’s, that will be like a, A traditional use of dynamic pricing. But now we’re moving into let’s say into online retailing or we’re moving into our industry where we can use dynamic pricing to be able to maximize cost and satisfaction by doing that, we can increase the value equation and companies can achieve a competitive advantage by doing that. NL: That’s super interesting. And I feel like if we go back to today’s topic, like what would be concrete examples of dynamic pricing in a grocery retail in restaurants or in theme parks? Maybe you can elaborate a bit more on that. JM: to do this for a while now where you It is to adjust prices based on the time of the day, but also a warmer, for example, did a very interesting. Experiment adjusting prices of certain product categories based on whether, , we know, for example, ice cream and cold beverages during certain weather pattern like rainy day or a cloudy day or a very sunny hot day. increase or change the demand and they adjusted prices accordingly. That was an experiment though by them. And many retailers are doing also that adjusting prices based on these these factors. Restaurants are trying to use dynamic pricing to be able to offer discounts during off peak hours or based on customer loyalty, for example. Things parks were using variable ticket pricing based on expected attendance, where condition and special events where it’s very interesting about theme park is that they offered, they offered a interesting value proposition. As you might be aware I’m talking in this case about Disney word for the Disney theme parks where you,   NL: It’s one of the most famous, theme parks in the US JM: you know that the lines are huge. To go to the lines to get into your favourite ride, they’re huge. So they called Jim plus or, you know that’s that’s a user dynamic pricing. Depending on certain hours of the day, you can use your Jim plus pass and an extra cost, of course, to be able to get in these lights Faster. And so that’s, a different value for position. , that’s a very interesting implementation of dynamic pricing in, a, theme park setting. Now, not every implementation has gone well. We recently have the case of Wendy’s. That is a fast food chain in the US where , they announced it. Dynamic pricing and it backfired because. Consumer will understand in dynamic pricing as price increases and in the implementation, the way this implementation was in fact. Price decreases. What they were trying to do were to give price, discounts, random discounts to certain items in the menu at certain hours. It was not about increasing or lowering the price of the main menu items, but it was not communicated well. So it backfired, and they had to abort the launch. So it was famous case. And it was a few weeks ago, so it was a very recent case. This is more of like a challenge that companies can endure while approaching this dynamic pricing is there a way that companies can balance these dynamic pricing strategies, like whilst maintaining their customer relationships? , are there any best practices of like communicating more effectively to customers? one of the main challenges. I mean, there, there are other challenges, like for example, having accurate and reliable data is quite important. We’re talking about having real time or near real time price adjustments. So you need data to be able to support that so that you need a way able to calculate and calculate. to collect and manage that data. At the same time, at the same time, you need a way to to manage consumer expectations. Do that through communication, but you need to be able to, you know, avoid these negative reactions because customers are perceiving Unfairness in the implementation that I’m reprising. Also, there is one challenge that is not the challenge that I would be most concerned with, which is the technical integration and because it is required technology. So the dynamic pricing requires technology that we’re talking about industry where. They use technology in different ways, but it’s not like shopping online. It’s not about booking a flight online. We’re talking about going to a restaurant. We’re talking about going to a theme park where you’re not expected to use a huge amount of technology. But the technical integration is not, it’s not a big problem because there are many advances, you know, by the day, literally , in this area, but I would say managing customer perception and data accuracy is one of the these are. Two of the biggest challenges that companies will have. But then on the other hand, you have opportunities, like for example we know that pricing can lead if managed well, can lead to increased revenues, increased sales and increased profitability if done well. Now it can also lead to an enhanced customer experience. If customers see that it’s a value we oftentimes have to ask to ourselves time that we are doing a price implementation. We need to see it. We need to put ourselves in consumer shoes and ask what is in there for me as a consumer with this new pricing? How is this impact? How is this benefiting me because we know that sometimes customers believe that a price implementation is just done by the company in order to benefit the company and customers don’t see a value for them. So, you know, good implementation of dynamic pricing can also be able to balance supply and demand. It can that in turn will lead to a better customer service and a better customer satisfaction, increased customer satisfaction. NL: You mentioned this technological advances. How do you see this changing within the grocery retail,   JM: Yeah, that’s excellent question   NL: like in supermarkets, for example?   JM:I try to use almost every piece of technology in the book, from self check out to no check out technologies for using your mobile to shop from using tablets in their shopping cart. So there are many integrations of their So far, it looks like using a smartphone as your shopping device is the favorite way to go because the use of a smartphone is pervasive now in the industry with consumers. They use cell phones, smartphones all the time. But, There are new implementations coming around. Amazon is testing in the U S at least in the U S pay with your palm feature where you just swipe your palm and you pay with your palm. You had to register that your palm before. So when you swipe, you pass your hat in front of the that’s how you pay, they’re different implementations., you know, this, this is a testament to how retailers are trying to find out the best solution for improving the efficiency. So I don’t know if The final technology is there, but retailers are trying and I’m sure it’s just a matter of time to get, to get the right balance of, , of data and technology , to do this implementation better. But the same time, remember that the the main challenge to make sure that the see the benefits in your implementation.   NL: Thank you for sharing. Like, I feel that it’s super interesting. Nowadays we see that humans are working closer with technology to make everything more efficiently. And I want to ask you, is there any like success stories from dynamic pricing in non traditional industries, because you mentioned this was, they were testing it by Amazon,  JM: Yes, NL: are there any success stories? JM:It’s, it’s very, it’s a case on Disney. that they use a dynamic price in Disney with the genie. Plus it’s a great story. But when my case is showing is that there were many hurdles along the way, like consumer backlash, there were many there was social media backlash as well. You know social media can be. Cruel sometimeS with their comments, but it looked like it’s a good implementation. The Disney CEO, Bob Iger said recently that that implementation, the Genie Plus, that’s the name of the dynamic pricing technology. It was one of the main drivers in the latest profit call,, which is good, meaning they’re acknowledging that an implementation line repricing can be very good for the business. And the only way for that to happen is that it has to be good for consumers too, because otherwise consumer will not use it. So in my opinion, that’s, that’s a great best practice. There are many bad practices also, you know, in some industry like restaurants like in the case of Wendy’s, for example, where even well, but you know what they call this is our learnings. This is, this is part of the learning process. So the idea is to be, to learn from these bad experiences and move and build something good. So far, we know that one of the most important things when implementing dynamic pricing in non traditional industries is to ensure that customers see the value of the implementation, that there is communication and there is transparency. With the customer. The customer see that it’s a benefit for them. So sometimes it’s not about technology, having the latest and greatest technology.  It is about. The principle of making sure that the customers see the value of that implementation. And in those cases, it seemed like it’s going well.   NL:Yeah. And you, mentioned at the beginning of the episode that consumer behavior plays a big role on that. from your opinion, like how do consumers perceive this dynamic pricing in non traditional industries? Like are any disparities in, in the acceptance of dynamic pricing?   JM: there are mixed perceptions in dynamic pricing. I mean, there is a, there is a consumer paradox sometimes in the sense that Consumers demand customization, demand personalization, but at the same time, they are concerned about privacy. But you know, you need to be able to disclose information to be able to have products that are customized and personalized to you. So I would say that when it comes to the 9B pricing, there is this paradox as well. like discounts. But unlike price increases, I mean, but dynamic pricing can offer both of them. So it is about, the consumer knowing when to pick, you know, the right price for them. And we know that dynamic pricing in industries such as airlines and hotels are accepted. I mean, we all book airlines tickets and we try to get our own strategy for getting the best prices in airline tickets. But then when it comes to an industry where consumers are not used, there is this is this feeling that this is not right. There is something that is going wrong. You know what I mean? So you’re already using as a consumer dynamic pricing in our industries. Like when you take an Uber or when you take a Lyft taxi consumers are already using it. So it’s kind of a very interesting, I think it’s part of the learning process. It’s part of the, transition, to a new technology. So at the beginning the consumers are going to be, , concerned.. Consumers are confused sometimes about where all this technology is going. There is fear in some cases. Think it’s part of the process of this transition,  as marketers, we need to know that and we need to know that we need to manage that situation where there is this mixed perceptions. So transparency, and communication are very important. To ensure that the consumers understand the benefits. Of the new implementation, you know,   NL: Yeah, of course. As you mentioned, I agree with you that this is a learning process. I honestly abide by learn by doing, and this is something that businesses also have to test out. But like looking into the future how do you see the role of dynamic pricing, playing in shaping the future in non traditional industries?  JM:I will say that dynamic pricing here to stay like many technologies. I think it’s going to be part of our pricing. We need, pricing to be a smart. And what I mean is we need to make sure that prices. It’s a language consumer’s expectations and because now consumer’s expectation changes because of the world that we live. We have this overload of information. We change our preferences very quickly. might recall a few years ago before COVID, consumers were not doing online shopping. Like, for example, I can give you my personal experience. I was not doing grocery shopping online. I was not shopping for seafood or meat online, and now I’m doing it. So in a couple of years, we just really changed our behavior so rapidly that I think that all the variables in the marketing mix need to adjust accordingly. I would say smart in this way that it’s surprising to understand the consumer. It’s surprising that it counts the different contextual variables that happen when we shop, you know? So that’s what I think is going to stay. You’re going to see, Nicole, good and bad implementations of, of this. You’re going to see many stories around. But the good news is that all these are going to be good learning experiences. So we can improve and get to a final equation. We didn’t to online shopping. It was not easy to transition to online shopping. Online retailers didn’t have it easy at the beginning. And now you see how easy it is. Right. So I think that we may, we may expect dynamic pricing to be in a similar fashion there will be a lot of hurdles in the beginning with the initial implementation. It’s part of the learning process, but then I believe it’s going to be something that will stay if done properly.Of course, NL: so what you mean is, you’re saying that dynamic pricing is becoming , is becoming a trend?   JM:there is a lot of curiosity. There is a lot of there. There is many expectations around and bad There is a lot of misinformation about how it works and how it can benefit retailers and consumers. But I think that the same applies to artificial intelligence. The same applies to many new technologies. We don’t know how it’s going to be benefiting us. I don’t think that anyone is, is going to be willing to forecast what is going to happen in the next three or four years with artificial intelligence, for example, and how it’s going to impact marketing because things are moving so fast, so quickly. So I believe that in the case of pricing, might be something similar. I think it’s not a trend yet. But there is a huge opportunity , I think dynamic pricing can offer businesses a great competitive advantage. So, it can be a very important point of differentiation for companies, if done properly. But now. That’s exactly where the money is.   NL: thank you so much for sharing all this information. And as you mentioned the pandemic, I mean, I think we can all agree that at the beginning, none of us were doing online shopping that all changed so fast and talking into the future, like this fast changes. What would you advise for businesses? Like how can they best prepare with future challenges, for example?   JM:about working in marketing nowadays is that you’re not going to get bored because things are changing so quickly. So businesses need to keep up to date with technology and with changing consumer preferences. Remember that we use technology to be able to increase customer satisfaction. I think that one of the challenges that marketers have is that they’re very quick to jump into using the latest and greatest without understanding how is that going to be benefiting, benefiting consumers. So we need to remember that consumers are first, and we use technology. To be able to satisfy and fulfill consumers better than our competitors. That’s a principle that hasn’t changed. So I would say business need to understand how it works, how we benefit and use whatever they can use effectively. It’s about doing the right implementation of whatever you’re doing. When it comes to pricing, you want to do pricing the right way. Bad pricing can backfire very quickly. It can impact profit. Pricing can go wrong if not done properly, so company need to be learning and need to keep up to date. We all need to understand how the dynamic pricing works and then assess the dynamic prices for you. So I don’t believe that I’m pressing will be for all industries or for all businesses. but that’s something that you, you as marketer, we need to decide, you know, based on your, individual circumstances. Another thing is that. This is an area that is doesn’t have a strong regulation yet. I believe will be more regulations coming, so I think that it’s very important for companies to be able to participate with the regulators to, number one, ensuring compliance. That you are compliant with the copyright regulation, be transparent, and also to be able to engage, you know, in discussions in the industries, in your chamber of commerce, or your, or whatever association you work with, and making sure that you work with the regulators. So at the end of the day, we all want fair policy that will benefit everyone. Pricing should be fair for both the buyer and the seller.   NL: What you mentioned before, like, it’s important to put optimal prices. That is something that we also tried to do here and at seven learnings. And I feel like today in this episode, we talked about. An overview of dynamic pricing, like what is it? What’s it like in non traditional industries? For a conclusion, what would be three to four key insights or lessons that you aim for our listeners to convey? JM: I always say transparency is important, meaning having a clear communication with your consumers about your dynamic pricing strategies. Overall, I believe there should be a clear communication about your pricing strategies, regardless of whether they are dynamic or not. But I believe that having a price mechanism that is going to change in such a way, you need to be communicating in a clear way. And number two, we need to be able to leverage technology. We know that data analytics and AI are crucial for dynamic pricing, but we need good data, and we need to be able to manage data properly, it is about balancing value and perception. So, consumers need to understand that whatever , pricing implementation you are doing, it will increase the value. So it’s very important that whatever pricing mechanism we use to value creation, value communication, and value delivery. So that’s marketing one on one. And then continuous adaptation. We need to be agile. We need to be responsive to market changes. Consumer feedback is very important for long term success. We don’t know what is going to happen five years from now, 10 years from now. We have no clue what is going to happen. So we need to be agile. , we need to be to be able to adapt. You know, keep learning. That’s a very good moment for all of us who are in the education sector. We need to stay, we need to stay abreast with the new developments, with the new implementation, with new technologies. But also we need to be informed about what’s working and what’s not working because we don’t want to repeat mistakes  NL: I really thank you so much for your time and your valuable insights. I feel like our audience will also take some key points from this episode. And yes, thank you so much for being here, José. It was a pleasure to have you. JM:Thank you so much for having me. It was a pleasure and good luck with the podcast, thank you very much.  NL: Thank you so much. Thank you for listening to the seventh episode of the Retail Pricing Insights podcast by Seven Learnings. I hope you got a lot of insights from our guest, Dr. Jose Mendoza. To stay connected and informed, subscribe to our newsletter and get the latest podcast episodes delivered straight to your inbox. Just click in the link in the description to sign up and stay ahead in the retail pricing game. Stay tuned for more upcoming episodes filled with more pricing strategies and insights. Thank you for listening to the Retail Pricing Insights Podcast episode number seven, and until next time. ​

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