Variable Pricing Is Revolutionizing How Much We Pay For Everything

delayed flight, airport

Photo: Flickr / #96

You already know how timing a purchase right can save you money.Plane tickets? Take the red-eye.

theatre show? See the matinee.

Toilet paper? Buy it online at the right time of day.

Wait, what?

Welcome to the latest new twist in the world of off-peak or variable pricing, where, if you’re willing to do things at an inconvenient time, you can catch a real bargain. You’ve taken advantage of this if you’ve ever been lucky enough to take a midweek or off-season vacation and score dirt-cheap hotel rates. And you’ve caught the flipside if you’ve found yourself forced to pay high prices because you had to fly home the day before Thanksgiving.

But now, variable pricing has begun to revolutionise how much we pay for dinner or a new TV. Read on to find out how it could help or hurt you.

When Variable Pricing Benefits Us All
When a company charges you more at certain times, they’re essentially charging you not only for the service, but for the convenience of having it when you want it–and when everyone else wants it too. After all, time is money.

And now, applying variable pricing to restaurants could transform the way we dine. As it stands right now, a filet mignon will cost the same whether you go on Monday at 5:30 p.m. or Saturday at 7:30 p.m. And sometimes you just can’t get a reservation for that Saturday evening spot. Normally, with variable pricing, the temptation would be for a restaurant to charge more for the more popular time. But while most of us would balk at paying more for a meal on Saturday, most of us would jump at the chance to get a discount for the same meal on Monday.

A New York-based company called savoured is making that a reality, The New York Times reports. The site enables you to make a reservation for an off-peak dining time and save up to 40% on your meal. For foodies on a budget, it’s a godsend. (A friend and I tried it at a normally way-out-of-our-budget restaurant in New York by making a reservation on a weekday at 6:30 p.m. We had the waiter to ourselves, the food was delicious … and we got a 40% discount, as promised.)

How the System Works
Restaurants have to seat a certain number of people for lunch and dinner in order to break even. But on weekdays or slower periods earlier and later during the night, tables could sit empty. One way to address this at a top restaurant like New York’s Le Cirque would be for the owner or manager to call up loyal patrons and remind them to stop by. Now savoured fills seats instead.

Variable pricing has advantages for both consumers and businesses. The Bay Area Toll Authority charges $4 more if you try to cross several bridges at rush hour. Annoying, until you see that congestion pricing has decreased travel time across the bridges because those who have the leeway to come in early or late to work do so. And some gyms will give you a discount if you agree to come in only between 9 a.m. and 5 p.m.–when everyone else is at work and the treadmills are free. Even if you can’t take advantage of daytime pricing, that means more machines are open when you go after work.

This is also good for companies’ bottom lines. Airlines use variable pricing so that their planes are being used almost constantly, instead of sitting idle in the hangar. And hotels benefit from having hotel rooms booked at all times. (A good thing to know when you’re trying to snag a discount.)

The New Variable Pricing (and Why It Sucks)
But now the concept is being used in ways that smack of plain-old price gouging. The Wall Street Journal reports that online retailers have taken a liking to pricing that changes by the day and hour, and with the help of sophisticated algorithms, will change prices drastically throughout the day on everything from flat screen TVs to toilet paper.

Some form of this has been going on since the advent of online shopping (and before that, by sending employees to other brick and mortar companies where they could take notes), but it has become increasingly volatile and sophisticated. On a particular day in August, for example, depending on which one of three sites you were on–Best Buy, Newegg or Amazon–and what time of day you logged on, you could have bought a Samsung plasma TV for $398, $400, $424, $500, or $600. So you could have paid 50% more than your neighbour, just because of what time you looked.

What makes this different from traditional variable pricing is that neither Amazon nor you gain an advantage in convenience if you buy detergent on Tuesday at 9 a.m. versus Wednesday at 2 p.m. What drives these drastic changes is just the traditional art of competitive pricing. The algorithm that decides how much you’ll pay for your goods is simply looking at whether a competitor’s offering is cheaper, what sales are out there and who’s charging what for shipping. That’s why a plasma TV on Best Buy’s site, for example, can swing from $400 to $500 within mere hours.

This might seem completely arbitrary or unfair. After all, why should your friend save $100 on a TV just because she happened to log on at 7:35 a.m. while you did your shopping at 8:50 a.m.? But retailers are well within their rights to change prices as they see fit, as long as someone pays them. And as of right now, 50% of the time consumers pay the lower prices, and 50% of the time they pay the higher prices. The only thing that determines the split is luck.

Or is it? You could try comparison shopping at several different sites, checking back in every hour to see if the price has dropped. But this, of course, is work. You have to decide if what you are saving is worth the amount of time you’re putting into it. Saving $150 on a TV by checking back eight times? Absolutely! Saving $.23 on toothpaste? Nope. (If you’re at all wondering if price hunting is worth your time, use our time worth calculator to figure it out.) You can also try using, which claims to be able to save you money by predicting the best time to buy consumer electronics, appliances, outdoor equipment and tools.

So next time you go out to dinner, buy a new cell phone or pay a toll, know that you might find a better price. You just need to time it right.

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