- [Narrator] On a Monday at 3:00 PM outside of rush hour traffic, a car from Times Square to
Central Park in New York might cost you around $17. Now, fast forward three hours. As more people are looking for cars, that same ride might cost closer to 24. If you've taken a trip like
this, or bought a plane ticket, you know to expect big price
swings based on demand, time or location. But did you know that those price swings are happening all over the economy, and often in places where
you might not expect, like on your laundry
detergent or even a blouse. These changes are part of a high tech and fast spreading strategy
called dynamic pricing. And as prices around us are rising faster than they have in four decades, to understand why things
cost what they do, you have to understand how it works. Dynamic pricing is a
strategy businesses use to change their prices automatically and ensure that they are
offering the optimal price at any given moment in time. - And that basically means that they're varying their pricing essentially based upon market conditions. So things like cost, what
their competitors are doing, and even demand. - [Narrator] Because those
factors can change quickly, some businesses are
updating prices more often. In February, 75% of
retailers on Quicklizard, a pricing software platform, said they increased how often
they update their prices in the last year. So where can you spot dynamic pricing other than ride share
companies and airlines? You probably recognize it with gas prices, where the price of a
gallon can change daily. Or on Amazon, which has been using dynamic pricing for years. Their changes are usually less noticeable, but they allow Amazon to determine the most competitive price for everything from electronics to household items. For example, here's the
price of these Tide pods over a day at the beginning of April. In the morning, it hit 21.49. By noon, it dropped to 21.24. And by evening, it had
dropped even lower to 19.99. A spokesperson from Amazon said the company's prices
fluctuate so they can meet or beat the lowest competitive
price from other retailers. But this is what dynamic
pricing looks like in action. And you may start seeing
similar strategies in brick and mortar stores, too. Chains like Kohl's and
Best Buy have rolled out electronic price tags, some of which almost look
like paper price tags, making it easier and quicker
to change the price on, say, a display of televisions. - All right, so I'm at
Best Buy and they got Lego, and that's cool and all, but check it out. They're moving to all digital price tags. - [Narrator] And the
supermarket chain Kroger has tested digital labels that
can change prices on items in seconds. But seeing these frequent
price changes in stores can be surprising for customers. - If you chat with someone
who's in the grocery store on a week to week basis, they know how much they're
paying for a dozen eggs. They know how much they're
paying for a gallon of milk. They know how much they're paying for, you know, their fruits, their vegetables. And when those types of prices change, people can be very resistant
and it can be a big turnoff. - [Narrator] But under certain conditions, companies are willing to take the risk. - Companies will go to dynamic pricing when more traditional ways of pricing are no longer working for them. So maybe they have previously
changed their prices once a quarter, maybe once a month. And they're starting to
notice that their costs are shifting so much throughout
the month or the quarter that their margins are getting squeezed more than they would like. - [Narrator] When most businesses decide to start using dynamic pricing, they use software to
track various factors. - There will be a range, a
huge number of algorithms, whose role is again to mimic
the choices that humans make. But because it's being
done in an automated way, we're able to set prices
much more frequently or much more granularly
than if you're doing it without the automation. - [Narrator] A dynamic pricing algorithm for a gas station might
look at the cost of fuel, competitor prices and alternatives that customers might have. - What dynamic pricing
would allow me to do is instead of having, you know, a single point of view that is
driven by the price of crude, I actually could have a
very granular point of view on individual competitors
and what my delivered cost is of the fuel, and then
execute those price changes on a very frequent basis. - [Narrator] But that
algorithm might look different for a grocery store. They might look at competitor prices, but they also might consider cost of goods and what they know customers
are willing to pay more on. But even if a business
uses dynamic pricing, those rules might not affect
everything you buy there. - There are a few exceptions
where prices are largely fixed and they're actually being
set by the manufacturer. Examples of that would be jeans, there's certain types of
sneakers or athletic apparel where the manufacturer
also sets the prices. And then prestige cosmetics is a third where you see a lot of
manufacturer set pricing. But beyond that, where
the retailer is actually able to set their price, you know, dynamic pricing can be
applicable across the store. - [Narrator] As more
companies use dynamic pricing, you might start noticing it more often, especially during periods of inflation, like the one we're in now. - You could be, you know,
visiting a store that has been using dynamic pricing for a long time. But now you're noticing
that the prices of things are changing a lot. And that's not because they're
doing something different. That's because the inputs
are changing more frequently. - [Narrator] The adoption
of dynamic pricing is expected to continue, and mom and pop shops and local retailers are starting to experiment with it as well as big box stores.