Pubs warned to 'tread carefully' with dynamic pricing

Dimitris Hiotis, who is senior partner and head of travel, tourism & leisure at global strategy consultancy Simon-Kucher, told The Morning Advertiser (The MA)​ utilising dynamic pricing can be beneficial but firms should “tread carefully” to avoid alienating customers.  

He said: “There is increasingly more talk about dynamic pricing and as more chains indicate they would do it; people are getting more used to [the idea].

“There will be [more businesses] that look at it and we do get people asking for [information on dynamic pricing] but you need to really tread very carefully, especially in the hospitality sector.”

This comes as pub operator Mitchells & Butlers (M&B) earlier this week outlined why it introduced a £2 surcharge on drinks after 10pm at one of its London sites, including licensing requirements and increased staffing and security costs.

A pint of BrewDog IPA at the Soho venue costs £7.40 during the day and increases to £9.40 after 10pm while a bottle of Budweiser jumps from £6.05 to £8.05.

Clear justification 

“Dynamic pricing works best when businesses can say yes, there could be times where consumers pay more but also demonstrates there are times when they pay less – and that becomes more acceptable for consumers.

“But having a clear justification is a very important element and what [M&B] has said is justifiable but it could still create some negative sentiment.

“It has to be justified to customers, otherwise it can create a backlash, which could harm a business in the long term,” Hiotis added.

In addition, the dynamic pricing specialist explained consumers are more familiar with variable pricing systems in other industries, such as travel, meaning transparency was key for pubs and restaurants, otherwise consumers could feel “taken advantage of”.

He continued: “It can work very well when people know in advance what the price is, which is the case for airlines and hotels, but for pubs they’re probably already [in-venue] and then are told they need to pay extra.

“That is when it starts becoming trickier to justify even though [the pub] probably has good reasons [to use dynamic pricing] – maybe they need to pay people more for longer hours and busier periods.

Increased demand 

“But it’s not the same as an airline or a hotel or even Uber where consumers can see the price is high [because of increased demand], so there's an element of ‘how can you justify it?’

“What would make sense is [to promote] it as an opportunity and incentivise people to come in at quiet a times to get a good deal [for example, happy hours]. Then you have the best of both worlds.”

Last year, Stonegate, the UK’s biggest pubco, also introduced a dynamic pricing system​​.

The operator said it would increase prices by 20p at about 800 of its venues during evenings and weekends to help cover the cost of extra staffing, licensing requirements and additional security.

However, the move received backlash​​ from the Campaign for Real Ale (CAMRA​) chief executive Tom Stainer, who described it as “troubling”.

Regarding the O’Neill’s pub in Soho, London, that used dynamic pricing, a spokesperson for M&B told The MA:​ “Most hospitality businesses and retailers deploy a form of dynamic pricing, this means prices can both rise as well as fall through tactical discounts being offered in the form of time-limited promotions and fixed price menus.”