Dynamic pricing could ‘alienate’ customers

Stonegate’s decision to introduce dynamic pricing in some of its venues was met with widespread debate. Some publicans and business owners defended the move, pointing to other businesses within and outside the sector, while many consumers became the source of backlash against the pubco.

The ‘dynamic pricing’ system has been introduced in 800 of Stonegate’s c4000 venues during evenings and weekends to help cover the cost of extra staffing, licensing requirements, and additional security.

The system itself is nothing new. Uber’s model relies on surge pricing during busy times, while ticket prices for gigs and sporting events often fluctuate demanding on demand. Airlines have deployed the strategy for decades now, becoming ever more savvy at harnessing consumer data and AI to find the optimal price point.

While heavily used in some other sectors, Stonegate isn’t the first hospitality group to foray into dynamic pricing. Soho restaurant Bob Bob Ricard adopted a three-tier pricing system in 2018, at the time charging 25% less for ‘off-peak’ bookings and 15% less for ‘mid-peak’.

Other venues that have dabbled in this form of pricing include The Clove Club, Chez Bruce, and Luca in London, and Home in Leeds.

Some bars have used the strategy to their advantage, turning it into a way to draw consumers in. Reserve Bar Stock Exchange – a venue opened in 2015 near the actual London Stock Exchange, which has since closed – created a concept out of drink prices constantly fluctuating on demand.

BrewDog re-launched its ‘Beerometer’ during the September heatwave. Starting at a base temperature of 20°C, 25p will be knocked off the price of a pint of BrewDog’s “Cold Beer” for every degree it gets hotter.

Across the pond, The Wall Street Journal published an analysis of surge pricing creeping into the leisure and entertainment sectors earlier this year. One comment described the system as reaching its ‘tentacles’ into the last ‘egalitarian’ spaces left.

Indeed, the backlash has been widespread, with everyone from Taylor Swift concert attendees to Uber hailers condemning companies for their apparent greed. Some businesses have listened.

David Risher, CEO of American ride-hailing company Lyft, said during an earnings call earlier this year that the service had missed out on riders due to surge pricing.

Meanwhile, Zhe Liu, assistant professor of operations management at Imperial College Business School, told The New York Times that companies relied on surge pricing to increase revenue or to lower demand, or both.

He said that although it was realistic of Stonegate to raise prices to cover increased costs, the strategy – albeit potentially boosting revenue – could also alienate customers and that “the long-term effect on customer demand should also be considered.”

Just as consumers have learnt to circumvent dynamic pricing in retail and travel – sometimes simply avoiding the venue altogether – they could be discouraged from going to the pub.

Tom Stainer, the chief executive of CAMRA, termed the new policy an “unhappy hour surge,” saying pubs had historically offered communities an affordable place to gather and socialize, but that drinks had become increasingly unaffordable.

“Pubs are places where you are expected to walk in and know what you’re going to be paying for a pint, regardless of the time of day,” he said. “If we saw this idea spreading, I can’t see that as being something that is really going to encourage people to support their local pubs.”

The strategy will effectively determine which consumers are willing to pay more and which are more inclined to stay away during evenings and weekends - meaning it could backfire, causing pubs to be noticeably emptier than before during peak hours.

David Read, chairman of Prestige Purchasing, told MCA: ”We are all used to dynamic pricing – in airlines, hotels and more recently with surge pricing at Uber. The distinction with the developments at Stonegate is that drinks are “buy as you go” whereas the other examples all have a “booking” element, and of course finite levels of supply.

”It feels like there is a risk that some drinkers will literally vote with their feet and walk into the competition instead, but of course that may still yield a higher cash margin overall, so the industry will be watching results closely for sure!”

Some business leaders – all too aware of the current barrage of operating costs – have leaped to Stonegate’s defence.

Chef and pub owner Tom Kerridge told Radio 4’s Today programme the industry was under huge pressure.

“It’s very difficult to make any money,” he said. “Beer is an incredibly expensive commodity. The process of brewing has gone up by an incredible amount. It’s ridiculous. That end result does have a knock-on effect.”

Steve Alton, chief executive of the British Institute of Innkeeping, said the move was “indicative of the reality of operating costs right now where pubs are trying to find any opportunity to deliver decent margins”.

Meanwhile, Loungers chairman Alex Reilley pointed out that other sectors as well as hospitality venues had used dynamic pricing before – but without transparency.

He Tweeted: “A number of city centre brands do this already (and have done for some time) – at least Stonegate have been honest about telling their customers. Maybe hotels and airlines should charge a flat fee and maybe Greggs and Costa should charge the same in service stations as they do on the [high street].

“In this case Stonegate are being criticised for being transparent – tons of businesses in a number of sectors operate dynamic pricing and don’t tell their customers.”

The chief executive of another major pub chain, who asked not to be named, told The Guardian the practice was not unusual and had been “going on for decades”, in the largest venues, during events and busy periods.

“They’re not the only ones doing it,” he said. “To be honest, good for them that they’re telling people.”

The unnamed boss, despite praising Stonegate for its transparency, acknowledged the social media backlash and concede the move may have backfired.