How dynamic pricing helps brick-and-mortar retailers

Retailers can now offer highly dynamic store-level prices without utilizing "surge" techniques.

Wendy’s recently found itself in what appears to be an unfounded controversy over allegations the fast food hamburger chain was planning to test "surge pricing" (raising prices during peak demand times, such as the model employed by some rideshare services). 

However, Wendy’s will likely pilot dynamic pricing at some stores via digital menu boards it plans to roll out during the next two years. The retailer said that the digital menu boards could allow it to change menu offerings at different times of day and offer discounts and value offers to customers, particularly in the slower times of day, without raising prices in response to demand.

Advances in artificial intelligence, pricing and CRM solutions, and digital display hardware are making localized dynamic pricing and promotions a more viable option for brick-and-mortar retailers than ever before. Here are three potential ways retailers (and their customers) could benefit from store-level dynamic pricing.

Product drops

Limited-time and limited-run product drops have long been a staple in e-commerce, particularly for retailers selling collectible, rare or promotional merchandise. A desirable item is available online for a set period of time and/or until a restricted supply runs out.

Until now, the limited product drop model has been more difficult to execute utilizing in-store pricing and merchandising systems, excepting short-term pop-up stores which may be opened to coincide with a product drop. 

However, with a dynamic pricing engine linked to digital signage, brick-and-mortar retailers can effectively conduct an online-style product drop across a store or stores without undue stress on store systems. The dynamic pricing and promotions could even extend to different products that are part of a drop being prioritized for turnover at different stores depending on localized demand.

Entertainment events

Events like concerts and sports are becoming a big business. While retailers generally account for these happenings in their pricing and merchandising strategies, dynamic pricing can help the fine-tune promotions based around local entertainment events.

For example, retailers responded to the record-breaking Taylor Swift "Eras" tour with programming such as interactive events specifically aimed at "Swifties" offered at the Mall of America in Bloomington, Minn. And Jeffries analysts predicted Boot Barn stores could see a significant bump in sales of Western apparel items and accessories (Swift began her career as a teen country star) fans would want to wear to her shows.

But what if on the day of a concert, demand for “Swiftie” products didn’t quite align with forecasts? Dynamic pricing would allow retailers to alter promotions and prices to drive purchases of certain products, helping to smooth out inventory hiccups and avoid over- and understocks.

Weather events

Retailers will often stock extra units of certain products, or set promotional prices on certain items, in advance of weather events. However, the increasing unpredictability of severe weather means that events are more likely to happen with short notice, or to unfold differently than forecast.

Dynamic pricing can enable retailers to quickly respond to unexpected vagaries in the weather on a regional, local or even individual store basis. For example, I live in New England, where the winter has both been unusually mild and also full of a number of surprises.

Earlier this year, the town where I live had a major snowstorm forecast. Schools were canceled ahead of time and local retailers presumably stocked up on snow removal tools as well as food items people typically consume during storms (think bread, eggs, milk and plenty of snacks).

However, the storm never materialized beyond a few flakes. With dynamic pricing, retailers could adjust the cost of leftover storm inventory and also promote products that would appeal to kids (and parents) dealing with a snow day minus the snow.