The rise of surge pricing: ‘It will eventually be everywhere’

Oliver Barnes, Philip Georgiadis and Laura Onita in The FT

For drinkers at the Coach House in central London on a busy work night this week, there was an uncomfortable piece of news to digest: the price of Britain’s favourite alcoholic beverage had just gone up — again.

Stonegate, Britain’s biggest pub company which runs the Coach House, has announced it will charge pubgoers 20p extra for a pint of beer on busy evenings and weekends. It is part of what it called a new “dynamic pricing” policy in some of its venues.

This has come much to the annoyance of some of its regulars. “It’s not right; we’re being done over enough on beer as it is,” says Adrian, a 37-year-old brand marketing manager, who has nipped into the pub near Piccadilly Circus after work. Sipping a £6.25 pint of Heineken, he admits that after the fuzziness of a few more drinks he might not even notice the price increase as the pub fills up.

“It just fleeces people trying to enjoy themselves,” he adds.

"Dynamic” pricing, as many in industry call it, or “surge” pricing as is more widely known by consumers, whereby businesses flex prices at particular times in response to shifts in supply and demand, is not a new phenomenon. It has been used by airlines in the US, for instance, since 1983 when the US government relinquished the power to set domestic airfares.

When booking flights and hotel rooms, consumers have become accustomed to the rhythms of the dynamic pricing model: book early or during the shoulder season and get a good deal; book last-minute or during the busy holiday periods and get penalised.

However, powered by algorithms and artificial intelligence, it is being introduced at a rapid pace by a growing number of consumer industries. Amazon changes the price of its products on average every 10 minutes, using millions of real-time data points to benchmark against competitors and track demand surges.

“It will eventually be everywhere,” says Robert Cross, who created a computerised dynamic pricing model for Delta Air Lines in the early 1980s before doing the same for hotel giants Marriott, Hyatt and InterContinental Hotels Group.

As high inflation erodes margins and improvements in technology make dynamic pricing cheaper and more practical for businesses to implement, the temptation to deploy the pricing strategy is growing in industries that have so far remained largely untouched by the method. Bars, restaurants and bricks-and-mortar retailers have historically only adopted dynamic pricing for basic discount offers, but that could change.

“If you’re a business, it’s irresistible because it will improve your margins and it’s in the consumer’s best interests too,” argues Cross, who chairs a revenue management company. “Anywhere there is a mismatch between what a customer is willing to pay and the actual price is ripe for dynamic pricing.” A 2018 study by researchers at Massachusetts Institute of Technology found that dynamic pricing boosted airline revenues by between 1 and 4 per cent, compared with traditional pricing.

However, the furore this week about the rollout of surge pricing in a beloved British boozer has reignited debates around the ethics of the pricing strategy and whether it is rigged against the consumer.

In some industries, dynamic pricing has proved less palatable. Ride-sharing app Uber refunded users in central London after its pricing engine briefly surged fares in the aftermath of the London Bridge terror attack in June 2017.

Fans trying to bag tickets for arena tours by Beyoncé, Coldplay and Harry Styles in the past year have expressed frustration over the wild fluctuations in Ticketmaster’s dynamic pricing model, which resulted in some paying more than double the face value. Ticketmaster’s parent company Live Nation Entertainment is being investigated by the US justice department as part of an antitrust probe.

Marco Bertini, a professor of marketing at Esade business school in Barcelona who advises Boston Consulting Group on pricing practices, agrees that dynamic pricing will only become more common. But he warns companies to be aware of the pitfalls, including the way that such pricing is explained to customers.

“The question is making sure there’s no secondary effect, like people getting pissed off and not understanding [the pricing method],” he says. “The devil is in how it’s communicated because you’re trying to get this customer to come back tomorrow.”

A question of fairness

For most of the history of human commerce, dynamic pricing was the norm, with customers haggling and bartering with vendors over the price of every item. But in 1876, inspired by notions of equality, Quaker merchant John Wanamaker introduced price tags at the launch of his eponymous department store in Philadelphia. Macy’s, the iconic New York-based department store, also under Quaker ownership at the time, did the same.

Beyond high-minded ideas of fairness, fixed prices allowed the stores to save on years of training for shop clerks in price negotiation, which in turn enabled faster expansion. The price tag quickly caught on.

Now, however, with advancements in data collection and the transition of commerce online, businesses are reverting to the historical norm and pivoting away from the fixed price.

There is also still room for growth: while retailers in the US have embedded dynamic pricing into their operations more widely, Europe still lags behind, according to Pini Mandel, chief executive of Israel-based Quicklizard, whose dynamic pricing tools are used by the likes of Ikea and Sephora.

More than half of retailers use it in the Nordic countries, about 40 per cent in Germany, Austria and Switzerland, but only 15 to 20 per cent in the UK, according to Mandel. “Inflation is the reason why the UK, which is the most conservative market when it comes to dynamic pricing, is also joining the revolution,” he adds.

One UK hotel group chief executive says complaints about dynamic pricing for room bookings are rare as consumer awareness has grown. “Now, I think customers generally get it in a way that they didn’t before,” he says. “Customers . . . understand that the earlier you book, the better the deal is.”

Dermot Crowley, chief executive of Dalata hotel group, which manages 52 hotels across the UK, Ireland and Germany, says despite the widescale uptake of dynamic pricing among hotel groups, even they have erred away from introducing surge pricing on food and beverage.

“When you’re deciding to stay in a hotel, it’s a big part of your weekend away, that’s the price and you can budget accordingly,” says Crawley. “If you buy a drink and then it gets more expensive, that leaves a different impression.”

Some 52 per cent of 901 US consumers surveyed by software company Capterra this year said they regarded dynamic pricing in restaurants as equivalent to price gouging. Despite the negative reaction to Stonegate’s new pricing policy, Alex Reilley, chief executive of casual dining group Loungers, says price discrimination is more common in the hospitality industry than most operators let on. Stonegate, which owns the Slug and Lettuce and Craft Union chains, had previously rolled out the same pricing strategy on a temporary basis during the 2022 football world cup, upping the price of a pint by up to £1.

A spokesperson for Stonegate said that using dynamic pricing also meant it could offer promotions on food and drink throughout the week and helped offset higher running costs when it was busy.

“I think Stonegate have almost fallen foul a little bit because of their honesty because there are lots of operators, particularly in city centre locations that do exactly the same and it’s not exactly a new phenomenon,” says Reilley. “I wouldn’t necessarily see this as Stonegate taking the piss. It’s them thinking about ways they can generate extra revenues . . . given the pressure they are under.”

Seth Moore, former chief strategy and analytics officer at online retailer Overstock.com, says the backlash that Stonegate has faced is more a result of the way it communicated the price change.

“If my pub goes out and says, ‘Before 7pm, we’re serving drinks 25 per cent off’, nobody objects to that,” says Moore. “In general, it’s better to market it as a discount off prime rather than an increase on prime.”

Threat of manipulation

In the period that surge pricing has been in operation in the airline and hotel industry since the 1980s, prices have largely declined with the rise of low-cost airlines and budget hotels and consumers have grown accustomed to the pricing model.

“Back in the day, only the wealthy people travelled,” says Cross, formerly of Delta. “Now, everybody travels and that’s thanks to dynamic pricing.”

But there are signs that consumer and regulatory tolerance could be waning because of the sharp rise in prices over the past year.

Italy’s rightwing government sparked a furious row with Europe’s airlines last month after outlining plans to cap fares on flights between mainland Italy and the islands of Sicily and Sardinia at 200 per cent of average prices. The government said that ticket prices had risen 70 per cent on those routes.

The plans to intervene in the market were unusual, but followed a drumbeat of questions over airlines’ pricing models this year. The Spanish government has also laid out plans to limit fare rises on some domestic routes, while the European airport trade association has called on the European Commission to “monitor” the level of air fares.

“As a consumer, I understand why people don’t like paying more for things . . . but it is important to understand that it often allows the same business to charge less during another time and create more access to whatever it is,” says Jonathan Ayache, chief executive of South African airline Lift and a former senior executive at Uber.

For many retailers with a large bricks-and-mortar estate, dynamic pricing is still in its infancy, as it involves having to physically change labels, a costly endeavour. But the uptake of so-called electronic shelf labels, offering the ability to rapidly update prices, is spreading. Walmart is installing digital labels in 500 of its stores and France’s Carrefour has been using them for years.

But greater reliance on algorithms to price products could have downsides. A 2021 research paper published by the Competition and Markets Authority, the UK watchdog, concluded that while pricing algorithms have “enhanced efficiency”, companies “may also misuse them, whether intentionally or unintentionally, and can cause harms to consumers and competition, often by exacerbating or taking greater advantage of existing problems and weaknesses in markets and consumers”.

A push towards more dynamic pricing has proved unpopular for ticketing platforms. In the UK, 71 per cent of 1,523 music fans surveyed by polling company YouGov late last year said they were either strongly opposed or tended to oppose surge pricing for concerts. Rock star Bruce Springsteen angered fans in the US last year when he adopted dynamic pricing for a tour for the first time, leading ticket prices to surge as high as $5,000.

Robert Smith, lead singer of the Cure, who this year convinced Ticketmaster through a social media campaign to refund service charges to his fans, stressed that he had avoided dynamic pricing, calling it “a bit of a greedy scam”. Taylor Swift, the second most streamed musician globally, opted not to use dynamic pricing model for this year’s Eras tour after it dragged on sales and angered concertgoers during her 2018 tour.

Some ticketing industry figures are unrepentant. “It’s called the ticket business, it’s not called the ticket fan club. Nobody pays more for a ticket than they want,” says Fred Rosen, who built Ticketmaster into a behemoth in the industry before leaving as chief executive after 16 years in 1997. “It’s not the ticket companies that set the prices, it’s a simple supply and demand curve.” Rosen predicts that despite some pubgoers “moaning” about dynamic pricing, the pubs “will still be full”.

But others question whether the intrusion of dynamic pricing into all aspects of commerce and culture represents a step too far, fearing that it could be rolled out to ever more essential goods.

“The world is full of micro moments but they all add up,” says Phil Hutcheon, the founder of ticketing platform Dice, which shuns dynamic pricing. “People will ask, ‘Why are these tickets $1,000? Are they only available to the ultra-wealthy?’ If a beer at 6.30pm is a certain price, then an hour later it is a totally different price . . . you just start losing trust in the system.”

A Level Economics 33: Efficiency

1. Productive and Allocative Efficiency:

a. Productive Efficiency: Productive efficiency refers to a situation where a firm or an economy produces goods and services at the lowest possible cost, given the existing technology and inputs. It occurs when a firm is producing on its production possibility frontier (PPF), meaning it is utilizing all available resources in the most efficient way. In other words, it produces the maximum output possible from the given inputs.

Illustration: Imagine a smartphone manufacturing company that uses advanced technology and skilled labor to produce smartphones. If the company operates at a point on its PPF, it is considered productively efficient. Any point inside the PPF represents underutilization of resources, and any point outside the PPF is unattainable with the current resources and technology.

b. Allocative Efficiency: Allocative efficiency occurs when resources are allocated in a way that maximizes society's overall welfare or utility. It happens when the marginal benefit of producing an additional unit of a good or service equals the marginal cost of producing that unit. In allocative efficiency, the distribution of goods and services is such that consumers' preferences are satisfied, given the available resources.

Illustration: Consider a healthcare system that allocates resources to different medical treatments. Allocative efficiency would mean allocating more resources to medical treatments that provide significant health benefits to patients, while reducing resources for treatments that offer minimal or no health improvements. By doing so, society's overall welfare is maximized, and resources are used optimally.

2. Dynamic and Pareto Efficiency:

a. Dynamic Efficiency: Dynamic efficiency refers to the ability of an economy to continually innovate, adapt, and improve over time. It involves maximizing the rate of growth in an economy and adjusting to changes in technology, consumer preferences, and market conditions. Dynamic efficiency is essential for long-term economic growth and sustained improvements in living standards.

Illustration: A dynamic and innovative technology sector that consistently develops new products, such as smartphones with advanced features, illustrates dynamic efficiency. The ability to innovate and stay ahead of competitors allows the sector to grow, attract investment, and contribute to overall economic progress.

b. Pareto Efficiency: Pareto efficiency, also known as Pareto optimality, occurs when resources are allocated in a way that no individual can be made better off without making someone else worse off. In a Pareto-efficient allocation, it is impossible to improve the well-being of one person without reducing the well-being of another.

Illustration: Consider a scenario where a company wants to expand its production by using more resources, but doing so would result in reducing the resources available for another company. If the expansion of one company makes it better off but makes the other company worse off, the initial allocation was not Pareto efficient. Achieving Pareto efficiency requires reallocating resources so that both companies' welfare is maximized without harming each other.

In summary, productive efficiency focuses on producing goods and services at the lowest cost, while allocative efficiency ensures that resources are allocated to maximize societal welfare. Dynamic efficiency refers to an economy's ability to innovate and grow over time, and Pareto efficiency ensures that no individual can be made better off without making someone else worse off. Each of these concepts plays a crucial role in understanding and improving the overall performance of an economy.

Democracy in Pakistan: Of the elite, for the elite, by the elite

 Civilians and the military have taken turns to rule Pakistan, but the system, arguably, has remained the same, ‘unscathed’ by democracy writes Touqir Hussain in The Dawn  

One of the most perplexing debates around is on the subject of democracy, where it is easy to confuse concept with practice, form with substance and illusion with reality.

There is another problem. Countries at varying stages of democratic evolution are all called a democracy, which adds to the confusion, as we, in our mind, expect all these models to be equally responsive in meeting the needs of society. That makes us tolerate and endure a system that is not quite democratic and may never become so.

In Pakistan, democracy remains both illusive and elusive. What we have is something that looks like democracy, but does not work like one. Democracy is a dynamic, not static, process but Pakistan’s “democracy” is stuck.

If any “good” has come out of the current crisis, it is hopefully the realisation that the conventional wisdom that Pakistan’s problems are due to a lack of civilian supremacy, or because the “democratic system” has faced repeated interruptions by the military rule, or that elected governments have not been allowed to complete their full term may not be quite true.

Has the current crisis — and the way politicians’ brazen preoccupation with the struggle for power is ripping the country apart while it burns — left any doubt that the “democracy” we have has been part of the problem, not the solution? In fact, it is this very “democracy” that has provided legitimacy to bad governance, produced weak governments opposed to reforms for fear of losing elections, and has kept recycling. Above all, it has lacked substance.

Form and substance

True democracy has both form and substance. The form manifests itself in electoral democracy, sustained by a process of free and fair elections, and peaceful and orderly change of governments. But the form must embody good governance to empower people, and it can do so only by resting on free and representative institutions, constitutional liberalism or any other value-based system, strong rule of law, and a just and equitable social order. That is the substance. Without substance, democracy remains hollow. It has no soul.

The intelligentsia in Pakistan, especially the liberal/secularist segment, is most passionate about the Western liberal model focusing on freedom of choice, free speech, civil liberties, independent judiciary, and of course elections.

Much of this class lives emotionally disconnected from the rest of the population and their harsh challenges of survival and means to cope with them. It feels that all you need is elections, free media, independent judiciary, and the Constitution.

Voila! You have democracy — and it will take care of the nation’s problems, including those of the poor.

Democracy and progress

The secular/liberal class as a whole, and Western-oriented sections of it in particular, are right in seeing a causal connection between democracy and progress in advanced industrialised countries. They are, therefore, justified in emulating a similar democratic political system and having high expectations from it.

Where they are at fault is that they do not grasp the full picture. Most of them forget that democracy, which ostensibly brought progress in the West, was more than a political system. It was also a society’s organising idea, whose substance was equality of opportunity, fairness, rule of law, accountability, safeguarding of basic human rights and freedoms, gender equality and protection of minorities.

In sum, democracy’s core idea was humanism. And the whole objective of giving people the right to choose who will govern them on their behalf was to ensure the implementation of this very ideal.

Otherwise, what is the purpose of self governance? Given the chance to self govern, would people like to bring themselves to grief with their own policies? Certainly this was not the intent.

Unless a nation shows this fundamental understanding of democracy and takes steps to put itself on the road to democracy, it will never get there. It will keep moving in circles or going backwards.

The poor cannot ‘feed’ on democracy

For much of the liberal class in Pakistan, especially its more affluent stratum, the form is the substance. It looks at democracy as simply black and white — there can be no gradation. 

Pakistan’s “democracy” is advanced enough to satisfy the liberals’ love of liberty and enjoyment of certain human freedoms, but regressed enough to be exploited by the elite for their purposes at the expense of the people.

In her book, ‘Thieves of State’, Sarah Chayes focuses on corruption in Afghanistan. Sarah, who spent a decade in Kandahar, concludes that the concerns of most people did not have much to do with democracy. Pakistan is, of course, no Afghanistan but the book has a message that applies here as well.

Democracy is no doubt the best form of government but go and ask the masses in societies that are grappling with serious state and nation-building challenges what is most important in their lives. What is important for them, they will tell you, is social and economic justice, human security and dignity and the hope for a better future. And they will like any government that provides this kind of life.

A USAID official once asked me what the people of Pakistan want. Development or democracy? Prompt came my reply — if democracy brings development, they want democracy; if it does not, they want development.

Basically, you need a democracy that satisfies the human aspirations for freedom as well as improves the quality of life for citizens at large. 

Pakistan’s ‘democracy’ a political tool for power

In Pakistan’s case, “democracy” is just a political tool for the dominant social groups to maintain their wealth and status. The other instrument is military rule.

But the beneficiaries are roughly the same in both models — the whole panoply of power comprising the top tier of politicians, bureaucrats, the military and judiciary, “business folk and the landed”, who among them monopolise the country’s economic resources.

The civil and military leaderships may compete for power, but eventually cooperate to maintain the status quo. Both use each other — the military using the failure of the politicians as a pretext to come to power or to dominate it, and politicians using the alibi of military interruption or dominance for their own failure. They are allies as well as rivals.

In Why Nations Fail, Daron Acemoglu and James Robinson trace the evolution of political and economic institutions around the globe and argue that nations are not destined to succeed or fail due to geography or culture, but because of the emergence of extractive or inclusive institutions within them.

They write:

“Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival … political institutions enable elites controlling political power to choose economic institutions with few constraints of opposing forces. They also enable the elites to structure future political institutions and their evolution.”

In light of their thesis, we can see how powerful groups or institutions have long dominated Pakistan’s body politic by taking advantage of its security issues, place of religion in its national makeup and its feudal social structure. The political system that emerges from this body politic is designed to empower only the powerful and privileged and does little to foster the rule of law.

Musical chairs

Civilians and the military have taken turns to rule Pakistan, but the system, arguably, has remained the same, ‘unscathed’ by democracy. There was no fear of accountability, and no obstacle to electability. They did not need the people, so they did very little for them. And neither of them faced the full wrath of the public as each deflected the blame on to the other.

When the cost of maintaining a “democracy” led by civilians would become unbearable, we would tolerate the army’s intervention to help us get rid of them. But instead of returning to the barracks, the military would stay on. Then we’d long for democracy, which would let us down yet again. The fact is that no institution is solely responsible for democracy’s misfortunes in Pakistan. They all provided opportunity to each other to come to power and supported the system.

In the civilian edition that now comprises the ruling coalition, politicians may be divided into political parties but are united by the elites. Henceforth, whichever party comes to power when the ongoing bloody struggle for power is over, it will likely be no different from others in being invested in the system. It may disrupt the system, but will not threaten it.

Liberty and order

Even if Pakistan had a fully functional Western liberal democracy, it was not going to solve the country’s fundamental challenges. The fact is the Western liberal democratic model has become too competitive. In their book, ‘Intelligent Governance for the 21st Century’, Nicolas Berggruen and Nathan Gardels challenge the view that the liberal democratic model is intrinsic to good governance. Examining this in relation to widely varying political and cultural contexts, especially the Chinese system, the authors advocate a mix of order and liberty.

When asked once on the Charlie Rose Show what he thought of Western democracy, Lee Kuan Yew — the inaugural prime minister of Singapore — replied that the system had become so competitive and combative that in order to come to power, the opposition spent all its time planning to undermine the incumbent government by misrepresenting or distorting issues and thus misleading the public. “It would be a sad day when this kind of democracy comes to Singapore,” he said.

In his classic, The Future of Freedom, Fareed Zakaria states that Singapore follows its own brand of liberal constitutionalism, where there are limits on political freedoms — and it happens to be one of the most self-content countries in the world.

It boggles one’s mind that we in Pakistan tolerate the civil-military led political and governance structure, which is rigged in favour of the elite, while using the full freedom of a democratic system to play the game of politics at people’s expense. We put up with it as if this behaviour is an acceptable price to be a “democracy”, which incidentally does not quite happen to be a democracy. Indeed, there are institutions that one finds in a democratic system, but they lack autonomy and integrity. They have failed in the moral strength to serve the people, but not in the capacity to sustain the system.

You can see how millions of good Pakistanis are glued to TV or their phones every day following the comings and goings of politicians as if they were going to solve the country’s problems. We forget that their fights are about themselves, among themselves.

Democratisation is a revolutionary struggle

You cannot change what you do not know. The creation of a true democracy is a revolutionary struggle. And it must begin with the realisation that the “democracy” we have will not solve our problems regardless of who is in power. We cannot also bank on this “democracy” to become democracy by itself.

Countries change not because they have become democratic. They become democratic because they have changed. In many ways, democratisation is a painstaking struggle, indistinguishable from state and nation-building. Progressive movements and the civil rights campaign in America, political and social movements in Europe and the Meiji Restoration in Japan are a few such instances.

How will this change occur in Pakistan?

That is the subject of a much wider and complex debate. Briefly, one can say the following: Pakistan has enormous strengths — remarkable resilience, faith-based optimism, a sense of exceptionalism, a vibrant media and a promising civil society.

There is enormous talent available within the country — academics, journalists, authors (many of them internationally acclaimed), political activists, retired public servants — both civil and military — who all have shown extraordinary knowledge and commitment to Pakistan. They can inspire and mobilise the young generation yearning for true change that could provide stimulus and critical mass for social movements.

That will be the purpose of social movements — to remove the obstacles to a genuine democracy in Pakistan. These include a misplaced focus on faith that has fostered extremism and hindered openness and tolerance, and a feudal dominance that has inhibited education, gender equality, openness to modern ideas and a credible political process.

Not to mention the military’s pre-eminence that has led to the dominance of security over development. The latter has skewed national priorities and resource allocation. All this is hardly a life-supporting environment for democracy.

Can Pakistan truly become democratic? Yes, it can. Whether it will; remains to be seen.

"India is not in a good place"

 

Surge pricing comes to the supermarket

Tim Adams in The Guardian

In 1861 a shopkeeper in Philadelphia revolutionised the retail industry. John Wanamaker, who opened his department store in a Quaker district of the city, introduced price tags for his goods, along with the high-minded slogan: “If everyone was equal before God, then everyone would be equal before price.” The practice caught on. Up until then high-street retailers had generally operated a market-stall system of haggling on most products. Their best prices might be reserved for their best customers. Or they would weigh up each shopper and make a guess at what they could afford to pay and eventually come to an agreement.

Wanamaker’s idea was not all about transparency, however. Fixed pricing changed the relationship between customer and store in fundamental ways. It created the possibilities of price wars, loss leaders, promotional prices and sales. For the first time people were invited to enter stores without the implied obligation to buy anything (until then shops had been more like restaurants; you went in on the understanding that you wouldn’t leave without making a purchase). Now customers could come in and look and wander and perhaps be seduced. Shopping had been invented.


If you have enough data you can get closer to the ideal of giving your customers what they want at the time they want it - Roy Horgan, Market Hub CEO

For the last 150 years or so, Wanamaker’s fixed-price principle has been a norm on the high street. Shoppers might expect the price of bread or fish or vegetables to go down at the end of a day, or when they neared a sell-by date, but they would not expect prices to fluctuate very often on durable goods, and they would never expect the person behind them in the queue to be offered a different price to the one they were paying. That idea is no longer secure. Technology, for better and worse, through the appliance of big data and machine intelligence, can now transport us back to the shopping days of before 1861.

The notion of “dynamic pricing” has long been familiar to anyone booking a train ticket, a hotel room or holiday (Expedia might offer thousands of price changes for an overnight stay in a particular location in a single day). We are used to prices fluctuating hour by hour, apparently according to availability. Uber, meanwhile, has introduced – and been criticised for – “surge pricing”, making rapid adjustments to the fares on its platform in response to changes in demand. During the recent tube strikes in London, prices for cab journeys ‘automatically” leapt 400%. (The company argued that by raising fares it was able to encourage more taxi drivers to take to the streets during busy times, helping the consumer.)

What we are less aware of is the way that both principles have also invaded all aspects of online retailing – and that pricing policies are not only dependent on availability or stock, but also, increasingly, on the data that has been stored and kept about your shopping history. If you are an impulse buyer, or a full-price shopper or a bargain hunter, online retailers are increasingly likely to see you coming. Not only that: there is evidence to suggest that calculations about what you will be prepared to pay for a given product are made from knowledge of your postcode, who your friends are, what your credit rating looks like and any of the thousands of other data points you have left behind as cookie crumbs in your browsing history.

Facebook has about 100 data points on each of its 2 billion users, generally including the value of your home, your regular outgoings and disposable income – the kind of information that bazaar owners the world over might have once tried to intuit. Some brokerage firms offering data to retailers can provide more than 1,500 such points on an individual. Even your technology can brand you as a soft touch. The travel site Orbitz made headlines when it was revealed to have calculated that Apple Mac users were prepared to pay 20-30% more for hotel rooms than users of other brands of computer, and to have adjusted its pricing accordingly.

The algorithms employed by Amazon, with its ever-growing user database, and second-by-second sensitivity to demand, are ever more attuned to our habits and wishes. Websites such as camelcamelcamel.com allow to you monitor the way that best-buy prices on the site fluctuate markedly hour by hour. I watched the price of a new vacuum cleaner I had my eye on – the excitement! – waver like the graph of a dodgy penny stock last week. What is so far less certain is whether those price changes are ever being made just for you. (Amazon insists its price changes are never attempts to gather data on customers’ spending habits, but rather to give shoppers the lowest price available.)

Until quite recently this facility to both monitor the market and give consumers best price offers has looked like another advantage of the digital retailer over its bricks and mortar counterpart. Recently there have been efforts to address that inequality and replicate the possibilities of dynamic pricing on the high street.

Ever since data has been collected on customer purchases it has been possible to place shoppers into what analysts call “different consumer buckets”: impulse shoppers who were likely to buy sweets at the checkout counter; Fitbit obsessives willing to pay over the odds for organic kale. In her cheerily titled book Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy Cathy O’Neil notes how by 2013, as part of a research project by the consultant Accenture using data from a major retailer, “it was possible to estimate how much it would cost to turn each shopper from one brand of ketchup or coffee to another more profitable brand. The supermarket could then pick out, say, the 15% most likely to switch and provide them with coupons. Smart targeting was essential, [as] they didn’t want to give coupons to shoppers happy to pay full price.”

Dynamic pricing is familiar to users of online travel websites such as Expedia. Photograph: Alamy

The obstacle to creating such “smart” pricing strategies in store has been the stubbornness of the paper price tag. A price change in most British retailers still involves a laconic employee manually updating them. In that, the UK currently lags quite far behind its neighbours in Europe (a fact noted last year by Nick Boles, then minister for skills, who praised French retailers for having systems that could change prices “90,000 times a day” while we still had minimum-wage employees traipsing along the aisles). Electronic price tags, which allow those 90,000 dynamic price changes, are a fact of life in most larger stores not only in France, but also in Germany and Scandinavia.

Within a couple of years it is likely they will become the norm here too – not least because cheap “price gun” labour might be harder to come by for supermarkets post-Brexit. That is certainly the view of Roy Horgan, chief executive of a company called Market Hub, which not only offers electronic shelf labels but also data analysis to keep prices competitive. Market Hub was created in 2010 by Horgan in part as a response to what he saw as a “race to the bottom” by retailers in his native Ireland in response to the financial crash. “We just thought that this can’t be the way to compete,” he says. “One of the things we are sure of is if you are copying your competitors’ strategy and you are losing, then they are losing too…” There had to be a smarter way.

Earlier this year the French market leader SES took a majority share in Horgan’s firm, giving it access to 15,000 stores. Only two or three of those at the moment are in Britain – Spar stores in Walthamstow and Hackney in London, where they are experimenting with dynamic pricing in the food hall, particularly with bread. The retailers show not only an uplift in revenue and profit (of 2.5%), but also a drop in wasted food of around 30%, according to Market Hub. They are selling their products in part as an eco-efficient system that prevents waste.

“When we set out,” Horgan says, “there were literally hundreds of startups analysing where customers were going in the store, or whatever. But there was also a ‘so what?’ about that. It didn’t make any difference without the ability to execute price [changes] and to make that change at the shelf. We developed a piece of software called Pulse, which analyses sales, weight, stock, and competitors’ prices that allows you to basically decide or not decide to take a trade. A city centre store will want to catch customers at the end of the day before they head home, so what level do you set your price at?”

Horgan suggests that British retailers are still a bit terrified that customers will be put off by changing prices – they notice one shift in price of a loaf of bread, but don’t see 50 changes of price in the vacuum cleaner they are browsing on Amazon. He believes that the system can benefit both consumer and retailer though, because it is about getting the right deal. “If you have enough data you can get closer and closer to the ideal, which is giving your customers what they want and at the time they want it, rather than overwhelming them with deals.”

It also perhaps has the potential to offer a glimmer of hope for the beleaguered high street. Shops are all too aware of the habit of “showrooming”, by which customers look at products in stores before going home and browsing the best deals for them online. Electronic price-tag systems can not only track online prices, they can – and sometimes do – also display at point of sale the hidden cost of shipping if the same product was bought online – a cost that most online customers don’t factor in. “There is a way for [high street] retailers to become profitable again,” Horgan insists.

So far, such systems have not entered the murkier waters of using the data to offer different customers different prices for the same product at the same moment. A couple of years ago B&Q tested electronic price tags that display an item’s price based on who was looking at it, using data gathered from the customer’s mobile phone, in the hope, the store insisted, “of rewarding regular customers with discounts and special offers” – rather than identifying who might pay top price for a product based on their purchasing history.

That trial hasn’t become a widespread practice, although with the advent of electronic systems and the greater possibilities of using your phone apps as a means of payment, it is probably only a matter of time. Should such pricing policies alarm us? The problem, as with all data-based solutions, is that we don’t know – no one knows – exactly which “consumer bucket” we have been put in and precisely why. In 2012, a Wall Street Journal investigation discovered that online companies including the office-supply store Staples and the furniture retailer Home Depot showed customers different prices based on “a range of characteristics that could be discovered about the user”. How far, for example, a customer was from a bricks-and-mortar store was factored in for weighty items; customers in locations with a higher average income – and perhaps more buying choice – were generally shown lower prices. Another study, in Spain, showed that the price of the headphones Google recommends to you in its ads correlated with how budget-conscious your web history showed you to be.

Increasingly, there is no such thing as a fixed price from which sale items deviate. Following a series of court judgments against other retailers advertising bogus sale prices, Amazon has tended to drop most mentions of “list price” or recommended retail price, and use instead the reference point of its own past prices.

This looks a lot like the beginning of the end of John Wanamaker’s mission to establish “new, fair and most agreeable relations between the buyer and the seller” and to establish something closer to a comparison site that works both ways – we will be looking for the low-selling retailer, while the retailer will equally be scanning for the high-value customer. The old criticism that consumer societies know the price of everything and the value of nothing is under threat: even the former certainty is up for debate.

Store wars: the future of shopping

Vending machines 2.0

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The Luxe X2 Touch features facial recognition software to identify users and suggest purchases based on spending history or context, such as iced drinks on a hot day. It can also prevent children from buying cigarettes or alcohol, or keep hospital patients away from sugary or salty foods.

The Amazon Go store

The Seattle store is the first to eliminate checkout lines by using a mobile app. Customers simply scan their smartphone on entry and pick up what they want. Computer vision technology keeps track of their purchases and their Amazon account is debited when they are finished.

Automated assistants

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US home improvement store Lowe is introducing a new employee into its workforce: a robot that finds products for you. The robots, which will start roaming the aisles in San Jose, California, during the course of the year, speak several languages and can answer customers’ questions.

Beacons of hope

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Beacons are small, battery-operated, wireless devices that transmit a bluetooth signal to an appropriate smartphone app. This technology can be used to nudge customers into the store, suggest offers and purchases, and also stores information to monitor customer behaviour.

The Starship delivery bot

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Conceived by the founders of Skype, this is designed to deliver anything from groceries to books. The autonomous six-wheeled robot is speedy and saves you from lugging shopping bags, although it is questionable how safe it will be roaming the streets of Britain.

Pop-up shops

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Got an idea for a shop, but worried about the commitment of opening one? Appear Hear is a website that helps you find short-term retail space and is designed to connect retailers, entrepreneurs, brands and designers alike. It has so far been used by top brands including Nike and Moleskine.