Idea in Brief
The Problem
Many companies use algorithms to set prices and adjust them in real time so as to maximize profits. But constant price changes can alienate customers, undermine their loyalty, and damage brand reputation.
The Cause
Pricing algorithms rely on artificial intelligence and machine learning to weigh variables such as supply and demand, competitor pricing, and delivery time. However, they often fail to consider the ways that frequent price changes affect customers psychologically, making them question the motives of companies and the value of their products and services.
The Solution
To better control what dynamic pricing says to customers and how it impacts customer relations, firms should develop a proper use case and narrative for implementing algorithms, assign an owner to manage them, set and monitor pricing guardrails, and act quickly to override the automation when necessary.
On June 3, 2017, blue lights flashed toward London Bridge as police cars responded to reports of a terrorist attack. They blazed past thousands of people who were enjoying a Saturday night at restaurants and pubs in the area. Many of those who were out on the streets, sensing danger, attempted to order an Uber and head home to safety. But for 43 minutes after the first emergency call came in at 10:07 PM, Uber’s dynamic pricing algorithm caused rates in that part of the city to jump more than 200%.
