In the world of retail, a ‘one size fits all’ pricing system has been the accepted norm for generations, but why is this? When you stop and think about it, every sales transaction is in some way unique, whether it’s because of fluctuating demand in the marketplace, individual consumer status, or the relative shelf life of that product. What if price could be calculated in real time for every purchase you make?
Based on data from The Curve Report, this same sentiment is shared by a majority of Gen Xers and Ys: As many as 76% of 18- to 49-year-olds are interested in trying a new flexible pricing model, and two-thirds say they prefer pricing that is flexible (66%) over pricing that is fixed (34%). Shifting to a more flexible model could provide opportunity to open up new markets, change buying patterns, reduce waste, and uncover a whole new set of purchasing behaviors among consumers.
Source The Curve Report
In collaboration with the minds behind The Curve Report from NBCUniversal, PSFK is investigating the rise of flexible pricing and how this new trend will shape how brands market their products to individual shoppers and how savvy consumers spend their money.
In many ways, the foundation for these flexible pricing models is already in place as a result of current shopping behaviors. The Curve Report found that 80% of Gen Xers and Ys describe themselves as ‘bargain shoppers’ who value price over convenience, which means that there are more than a few consumers who will tweak their shopping style and brand loyalties based on real-time personal pricing. This sentiment presents itself as a huge opportunity to retailers who can develop clever ways to offer the best overall value, and allow consumers to vote with their wallets.
Putting this flexible pricing model in action, supermarkets Safeway and Kroger are offering methods to determine individualized prices for shoppers. The system works by analyzing a shopper’s previous purchases, and leveraging that data into insights about what they might purchase in the future. For example if a person makes purchases that might indicate they are part of a large family, the supermarket could offer targeted discounts on bulk food items, or give discounts only on that customer’s preferred brands. By creating specific prices and offers based on shoppers’ habits, the grocery store has a way to improve on their thin profit-margins, at the same time offering deals to the customer only on the items they are specifically interested in purchasing.
Flexible pricing also allows brands to connect with consumers in innovative ways. For example, Kapture is an app that rewards users for taking pictures of ‘moments’ and sharing them on social networks. The free iPhone app lets brands and businesses leverage anyone taking a photo as a brand ambassador by offering instant rewards, including discounts and physical goods. These can either be redeemed instantly, saved for a later date, or given as gifts to friends. Kapture has signed up more than 300 merchants in New York City, and allows brands to connect with their consumers and benefit from the millions of photos already taken and shared monthly via social media.
In a more playful application of this idea, Spanish marketing agency Momentum recently installed 18 vending machines for Coca-Cola’s lemonade drink Limon&Nada that offer discounts when the temperature rises. At ambient temperatures of up to 77°, the cans of lemonade cost 2 euros. At 78-84°, they are around 30% cheaper at 1.40 euros, and when the temperature reaches 85° and above, they are half price at just 1 euro. This creative method of pricing lasts through the summer months, and offers yet another way to think about pricing products based on demand.
Whether applying this model to help prevent food waste in supermarkets, or to make retailers bid on customers for their business, flexible pricing models are poised to fundamentally alter the way people think about spending their money. As this approach becomes more widely adopted, it will be up to retailers to continually innovate, and devise clever and creative ways to attract the ever-savvy consumer.
For a closer look at how brands are approaching this issue, be sure to head over to The Curve Report to check out The Price Is Right (Now!), which takes an in-depth look at how flexible pricing is impacting a variety of industries.