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What is Dynamic Pricing? How to Avoid Paying Higher Prices While Shopping Online

By Guest Author

price tagsAmericans aren’t just strapped for money. They’re strapped for time. In this down economy, many people are getting a second job or starting a small business to earn some extra cash and make ends meet. This usually leaves very little time for holiday shopping and could be one of the reasons why e-commerce sales are expected to increase by 11% this holiday shopping season while in-store sales are only predicted to  increase 3%.

However, shopping online to save time can actually cost you more money than you thought, and not just in shipping & handling fees either. In fact, you might be charged more for an item online than someone else shopping at the same website for the same item at the same time. How could this be? It’s something called “dynamic pricing.”

What is Dynamic Pricing?

Dynamic pricing, which is also commonly referred to as time-based pricing, is a type of price discrimination that companies use to change prices on the fly based on circumstances and estimated user demand.

With modern web browsers, websites have the ability to collect all kinds of information about you and your online behavior by using tracking cookies and other tools. A cookie is a small text-based file that is automatically saved on your computer in the background while you’re browsing. These files have the ability to track the sites that you surf, how much time you spend there, how much money you spend and how often you visit. Your initial thought may be that cookies are obtrusive, but they’re not always bad. In fact, cookies are responsible for remembering your login information so you don’t have to constantly sign into sites and for saving items in your shopping cart, even after a few days.

Using the collected data, companies can then make guesses about how much more willing you might be to pay for the same item or service, and adjust prices accordingly in real time.

The fact that demand increases value is a time-tested market sentiment. However, there are times when the market goes too far, and government entities have had to come in to regulate certain dynamic pricing activities, such as price gouging. This practice raises prices to the point of being unfair. For example, you may notice this happening for the “Follow Me Thomas” toy this year. It retails for approximately $40, but currently can’t be found any cheaper than $70 on Amazon and other online shopping sites like eBay. There’s at least one toy or hot product that experiences this sort of unfair pricing activity every year.

When Dynamic Pricing Makes Sense

There are times when dynamic pricing makes sense. You may experience this first hand while booking airline tickets during the peak travel season (i.e. increased demand) or paying additional fees for rush orders (i.e. buyer needs it fast and is charged more). Dynamic pricing is widely accepted in the banking industry as well, with rates and fees changing based on bank balances and credit ratings.

When Dynamic Pricing Stinks

Most major retailers are engaging in dynamic pricing online, even though they know you hate it. They quietly change prices from one visit to the next based on your behavior during the previous visit. For example, if you look at an item a second time, the site assumes you have a greater desire for the product and increases the price. They hope that you, like most consumers, don’t have the time to shop around.

Dynamic pricing is perfectly legal, so long as discrimination isn’t based on federally protected factors like age, sex, and location. Nobody really knows how far dynamic pricing reaches or exactly what goes into the various algorithms. In fact, the tactics may not be as simple as asking certain shoppers to pay more. Online retailers could be directing consumers to certain deals and special offers designed to make then spend more, based on their online history.

It’s safe to assume that every major online retailer is engaging in some form of dynamic pricing. So what can you, as a consumer, do about it?

“You Gotta Shop Around” Still Holds True

The dynamic pricing strategy companies use is nothing to worry about for well-informed shoppers. Use comparison shopping engines to find and compare prices for the same items and make sure you’re getting the best deal possible. Also use deal and coupon sites like SlickDeals.net and RetailMeNot.com to bring down prices even further.

If you suspect any dynamic pricing going on, try clearing your history and cookies in your browser. Does that change anything? You might also want to try using different browsers just to test. A report by the Consumerist suggests Chrome users are offered better deals than Firefox users.

What are your thoughts on dynamic pricing? Any other insights or tips for consumers to get fair prices?

Jessica Bosari writes for the money-saving site, Billeater.com. The site is devoted to helping people reduce expenses, save money and find great deals. Pay Billeater a visit for more money-saving tips!

(photo credit: Shutterstock)

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  • Karmella

    You’ll also want to clear your LSOs.

    The Consumerist article is an anecdote from one person who was offered one loan rate from Capital One when using Chrome and another when using Firefox. I don’t doubt that browser type is part of a profile that could affect dynamic pricing though.

    I think it’s a form of price discrimination, similar to coupon use – one set of shoppers will buy an item at the price they see first, and another set will buy after searching for a better deal and/or finding a coupon. It’s more “unfair”, because I think most users are not as educated about it – pretty much everyone understands the idea of a physical coupon, but most may not understand the steps they should take ti get the best price online.

    Most people *should* know more about cookies – yes, they are useful so that you don’t have to retype signin information, but how many cookies are really necessary, even for that convenience? Not many. And I don’t think most people understand how long those cookies might remain, or that there are third party cookies.

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