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Pricing Strategy That Could Take A Bite Out Of Your Wallet

5:23 AM, May 9, 2012   |    comments
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JACKSONVILLE, Fla. -- It is the price you pay for being thrifty. The cost of being deliberate. It is a widely used system that will drive you crazy and it is rooted in the airline industry: dynamic pricing.

It can cause airline ticket prices to fluctuate, and not just because you're getting closer to your travel date. Steve Crandall, who's been a travel agent for 27 years, said even he doesn't fully understand how it works.

"It is just like any other industry; it is supply and demand," said Crandall.

It's sort of supply and demand, but sometimes you are actually competing against yourself. George Hobica, an industry analyst, said the system discriminates.

"It is fair if you get a great airfare. It is not fair if you don't," said Hobica.

The system is based on the computer technology and algorithms.

A simple explanation is this: you and the person sitting next to you on the same flight headed to the same city may have two different prices, and it's all because you purchased your tickets at a different time or a different day of the week.

Crandall said he sees it everyday on his computer terminal. 

"This customer bought at $465 from us and in the afternoon, the price went up. It wasn't that the seats sold out. The price just went up," said Crandall.

There's a spy inside your computer helping them know when to raise the price, but we'll go over that in a minute.

This pricing strategy that was once limited to airlines and hotels is now being used by 17 Major League baseball teams. UNF Economist Paul Mason is not surprised.

"Part of it is the weak economic conditions to find any way they can to increase their revenue flow and their profits," said Mason.

Prices of individual baseball game tickets go up or down based on demand, opposing teams, or even the weather. Other professional sports are looking into dynamic pricing.

Macky Weaver of the Jacksonville Jaguars said the NFL is not there -- not yet.

"I'm not sure we have the number of events that really makes sense for a variable pricing model. Certainly, it is something that is being explored," said Weaver.

It is a big change in the sporting world, but it is not isolated to that form of entertainment. Hobica said to try buying a ticket to Broadway.

"Broadway theaters have dynamic pricing for shows now," he said.

Is this form of pricing fair to consumers?

"Consumers will have to pay higher prices if they don't react effectively to what the businesses are doing," said Mason, "If they don't shop around or if they don't learn the system to know how they can do the best they can in buying the product."

So how can you be sure that you're not paying more for your seat than the person sitting next to you on the plane or in the theater?

Hobica, who tracks the airline industry, said there is a solution.

"The solution is go to Google and type in 'airfare alerts' and sign up for as many as you can stand," said Hobica.

And what about the spy inside your computer? If you're doing repeated price searches on the Internet, Hobica said to clear your cookies after each search.

"On Travelocity and some other sites, in the past, if you search for a low airfare and you don't book it and then you go back, maybe a few minutes or an hour later, the browser sees you've rejected that low fare and they may show you the next highest airfare," said Hobica.

"We have seen that depending on what browser you're using, it is good idea to clear your cookies," Mason said.  He also said it is difficult to develop a solid solution to counteract dynamic pricing, but you can beat them if you are diligent.

"The solution is for the consumer to follow what is happening with the prices, particularly on products they're anticipating buying in the future" said Mason.

"See what is happening to prices at different times of the day, different days of the week, before the purchase is made to avoid paying more for the product than is necessary."

Dynamic pricing is here but it doesn't have to cost you. However, you have to be able to recognize the best price when it is in front of you and decide.

First Coast News

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