Merlin Entertainments – the owner of Legoland and Alton Towers – is the latest high-profile brand to announce the introduction of a dynamic pricing model.
The parent company of the two theme parks, and many other popular attractions, stated that approximately 20 of its global venues will introduce the new pricing model in 2024.
The company has claimed the move will help "protect the guest experience" by ensuring that the "peak period experience is optimized by avoiding overcrowding."
So, how exactly does dynamic pricing work?
While many companies (Merlin Entertainments included) currently utilize peak and off-peak pricing, which alters prices depending on seasonal fluctuations – dynamic pricing takes this a step further.
Powered by machine learning, dynamic pricing is more flexible and responds faster to events/issues – providing customers with up-to-date price discounts or increases.
This may mean that customers could pick up a last-minute bargain if a sunny summer weekend was unnaturally quiet, but it also works in reverse, meaning a mid-week winter afternoon could see a price surge if it started becoming busy.
Merlin Entertainments’ Chief Executive, Scott O'Neil, described the new pricing model as "very intuitive," stating that:
If [an attraction] is in the U.K., it’s August peak holiday season, sunny and a Saturday, you would expect to pay more than if it was a rainy Tuesday in March.
But how do customers feel about the pricing model? And will it really deliver on the promise of an improved customer experience?
Dynamic or Surge – Does it Matter?
While customers have not yet had the opportunity to see how Merlin Entertainments’ new pricing structure will work in practice, there are examples of other businesses adopting similar models.
American fast-food chain Wendy’s also recently announced that it would be introducing dynamic pricing at its restaurants but was quickly forced to backtrack following an outcry from customers – with the company claiming that its plans had been "misconstrued".
Chief amongst Wendy’s critics was US Senator Elizabeth Warren, who wrote the following post on X:
.@Wendys is planning to try out “surge pricing” — that means you could pay more for your lunch, even if the cost to Wendy’s stays exactly the same.
It’s price gouging plain and simple, and American families have had enough.https://t.co/dbJuhAM6vp
— Elizabeth Warren (@SenWarren) February 28, 2024
While Wendy’s was quick to refute the claim, stating categorically that it "will not implement surge pricing," the fast-food business is still planning on using digital menu boards that could offer different options at different times of the day.
What’s the old saying about looking like a duck and walking like a duck?
Despite Wendy’s statement referencing "discounts" and "value offers", the fact of the matter remains that customers will still be paying different prices at different times for the same product.
For Jon Picoult – Author and Founder & Principal of Watermark Consulting – this is the sticking point; as, regardless of whether it’s dynamic or surge pricing, it still contradicts what Picoult believes to be one of the key things that customers value: "consistency and predictability."
Price is part of the customer experience. People routinely talk about customer experience as though it were separate and distinct from price.
"The fact is that price (and how prices are set) plays an influential role in shaping customer impressions. For example, a low-priced offering can make a customer feel thrifty and prudent – whereas a high-priced one can make them feel exclusive and elite."
While there are clearly differences in price and frequency of use/visit between fast-food restaurants and theme parks, Picoult’s point about the reassurance of a fixed, consistent price for a product is still valid and could have a significant impact on CX and customer loyalty.
However, this does not seem to be an issue for all sectors.
Where's the Value?
While transport giants Uber and Lyft have made surge pricing popular in recent times, at its core, it’s just another case of supply and demand.
Airlines and hotel providers have been using the model for years – increasing prices for certain times of year, if there is a particular event on, or more generally if a product becomes more popular.
In discussing why this practice seems more acceptable to customers than the idea of paying more for a burger and fries, Eric Dolansky – Associate Professor of Marketing at Brock's Goodman School of Business – argues that it is down to what customers consider to be valuable:
“The difference is the perceived value for consumers when it comes to purchases such as travel versus physical products, such as food items, for which customers expect relatively stable prices.