Look closely at almost any product in a UK supermarket this week and you’ll find two prices on the label. One is bordered in yellow or gold and marked with a small logo, the other, in smaller type, sits beneath it. The shopper with a Clubcard, a Nectar card or an Advantage card pays the first. Everyone else pays the second. This has been true for the best part of a decade, and has been generally accepted by customers, despite there still being hesitations around the concept. It has also, in that time, never been called dynamic pricing – though, in every meaningful sense, it is.
A couple months ago, we wrote about dynamic pricing, looking at the technology and behind-the-scenes thinking driving dynamic pricing in grocery. We explored how electronic shelf labels, elasticity modelling and AI are making real-time price changes possible, and heard from retail leaders that, done well, dynamic pricing is less about maximising margin and more about managing inflation and reducing waste. But every one of those conversations kept circling back to the same unresolved question — and it’s the one we turn to now: how do you tell a customer the price has moved without losing them?
“The answer in every conversation we’ve had with senior retail leaders since, keeps coming back to language – get the words right and the customer stays with you; get them wrong and the reality of the technology barely matters.”
The answer in every conversation we’ve had with senior retail leaders since, keeps coming back to language – get the words right and the customer stays with you; get them wrong and the reality of the technology barely matters. This can be particularly difficult when customers struggle to differentiate dynamic pricing from more traditional pricing strategies, and this is exactly what a recent Which? study found to be true.
The example that really raised dynamic pricing in the public consciousness is Ticketmaster. When Oasis’s September 2024 reunion sale saw prices climb in front of fans in the queue, the backlash was immediate and the phrase “dynamic pricing” was being used to describe the process by customers and the media alike. A year later, the CMA found Ticketmaster hadn’t actually used a real-time algorithm at all – the standing tickets had been released in two tranches at two prices, with the cheaper ones shared first. But by then, as Which? put it, “the genie was already out of the bottle.”
A facet of price changes that gets banded under the dynamic pricing label is personalised pricing, which, instead of moving the cost on the shelf for everyone, changes based on what a retailer knows about an individual. One senior grocery leader we spoke to was clear that inside their business, they don’t call it dynamic pricing at all. “We don’t look at it in terms of what you’d call dynamic pricing. We look at it more in terms of personalised or individual pricing.” Rush-hour pricing, weekend pricing, prices moving because the sun is shining – they had “rightly or wrongly stayed very clear of that,” because “that is not in the interest of the customer. That tends to be businesses just trying to drive a bit of margin.”
Asked whether loyalty schemes qualify as a form of dynamic pricing, a CEO we spoke to was unequivocal. In their base state, they said, loyalty schemes already are a form of dynamic pricing with personalised prices at an individual level, moving to serve a customer need. What they would never do, they told us, is use loyalty or third-party data to move prices across the board at a particular moment in time simply because they thought they could make more money. That, they said, is a red flag.
They continued: “You talk to any retailer, the number one driver of trust in price is fair and stable prices.
“Customers have a Goldilocks zone where they expect us to be and they expect us not to jump around. If it jumps around, they feel like we’re trying to trick them.”
Another senior retail leader described the risk in their own estate: it wouldn’t be acceptable, they said, for a customer to buy something in the morning and come back later to find it cheaper. The workable version, they suggested, would be a defined hour where prices were low, with proper communication and transparency.
“The word every leader kept coming back to was transparency, which puts communications and marketing around any personalisation or price changes in retail – and particularly grocery where the products are a necessity – at the centre of the conversation.”
The word every leader kept coming back to was transparency, which puts communications and marketing around any personalisation or price changes in retail – and particularly grocery where the products are a necessity – at the centre of the conversation. With research finding that customers want to understand the ‘why’ in order to buy in, how that information is shared with them is the centrepiece.
Pret A Manger’s subscription is an example of when this has been done really well. It uses purchase history to personalise recommendations, remember the subscribers’ usual order and adjust offers to what each customer actually buys, for a set price each month. When the subscription rose from £20 to £25 a month, and this was communicated through three channels. Firstly, each subscriber received a direct email weeks before the change with a clear, easy option to cancel. Secondly, it was visible in-store and in-app with consistent wording across all touchpoints. And thirdly, the press was briefed on the reasoning before they were given the opportunity to create their own narrative. The strategy was so successful it was named Marketing Week’s Campaign of the Year at the time.
However, when a business gets this type of communication wrong – particularly where personal data is involved – it can cause real backlash. This is exactly what happened to Wendy’s, when its Chief Executive used the phrase ‘dynamic pricing’ on an earnings call, describing digital menu boards and day-part discounts for investors. It was never meant to be a customer-facing announcement, but once the media picked it up, it was translated into an Uber-style surge pricing story. Customers didn’t feel the brand was being transparent with them, and by the time the company clarified what it really meant twelve days later, the damage was done. Although the story was around pricing, this misstep is now taught by Harvard Business School as a communication case.
The gap between Pret and Wendy’s is the gap retailers are now having to navigate. Same technology, same use of data, entirely different customer response because of different communication strategies.
It’s clear that transparency is the key to customer buy-in, and, realistically, it is something grocery has been doing for a decade – through the yellow-bordered price on the shelf edge, through the app offer, through the delivery premium, through every price that moves for a reason the customer can see. But maintaining that trust will be the real judge of dynamic pricing’s long-term success in the retail space.
