Dynamic pricing offers great promise. It ensures that consumers get the lowest price if they are willing to sacrifice some convenience, but it also allows retailers to earn the most revenues when their offerings are in high demand. But dynamic pricing also creates some great risks, especially for omnichannel retailers. If a consumer recognizes that the retailer is charging different prices in various channels, without any clear justification for doing so, the outcome might be anger, frustration, and even allegations of unfair practices, as Target recently discovered.
Prompted by some consumer complaints, an investigative journalist at a local television station tested the pricing of 10 items listed on Target’s app and how they changed, depending on the person’s location. The investigation showed that when users came into close proximity of a Target store, the prices listed on the app increased. Once those users were in the store, the prices climbed even higher, for 4 of the 10 items tested.
The change likely reflected Target’s attempt to use lower prices to encourage in-app purchases, while charging higher prices in stores to customers who might be unable to resist the lure of bringing home the latest Dyson vacuum model—one of the products for which the price changed in the journalistic experiment. But the pricing practice also likely is a result of Target’s long-standing price-matching guarantee, which it uses to ensure it can compete on price with Amazon. That is, when shoppers are using mobile or online channels, it needs to make sure its prices are the same as Amazon’s. When shoppers are in stores, they may be less likely to check Amazon’s price, so Target can list a higher price in that channel.
The report and continued consumer complaints prompted Target to announce some changes though. It will continue to use dynamic pricing—and it likely cannot afford to do otherwise—but it plans to provide more information about how those prices are determined. Each price tag will specify if that price applies in stores, through the app, or on Target.com. Furthermore, every price will feature a link to the text of Target’s price-match guarantee. By providing such information, Target hopes to give consumers a greater sense of control, as well as head off complaints about unfairness before they even arise.

Discussion Question:

1. What is the conflict between pricing transparency and dynamic pricing in omnichannel retailing?
2. As a potential Target customer, are you satisfied with its new policy regarding dynamic pricing and its price match policy? Why or why not?

Source: Corinne Ruff, Retail Dive, February 12, 2019