Uber’s variable “surge pricing” can be controversial with consumers Uber’s variable “surge pricing” can be controversial with consumers. Photo: Graeme Roy/CP

Public furor over StubHub’s inflated costs for tickets to the Tragically Hip’s farewell tour shows the risks of variable pricing. But roving rates don’t have to induce anger. Here are some scandal-free ways to hike your rates based on demand.

Be straight with people

“If you are selling something lots of people want­—whether it’s a ride home or a ticket to a concert—you have every right to charge more for it. But the key is to make sure the price you’re charging represents the value it offers to the consumer, and that you as a company are demonstrating the value. For instance, an Uber is usually cheaper than a cab, so most of the time, consumers get the better end of the deal. It’s only in certain situations that the price goes up, and that’s because the demand is up.

“My research shows that if customers expect the higher prices, then they are much more OK with paying them—the predictability is important. So is transparency. An example of a variable pricing system that’s not very transparent is airline tickets. I know I will go on Air Canada’s website and see a different price than someone else might see, but I don’t know why. Same with gas prices—I know the price will be different tomorrow, but I don’t really know what it’s going to be. A company like Uber, however, will let customers know the reason behind the pricing: ‘Look, public transit is down and there’s more demand, so we’re going to charge more.’ That transparency is essential for getting people to accept this pricing method.”

–Eric Dolansky, Assistant Professor of Marketing, Brock University, St. Catharines, Ont.

Explain your reasoning

“There’s always a limit to what people will tolerate, but if your customers truly are loyal, they will typically brush off small things, even price increases, as the cost of doing business with people they like. The key is getting in front of the price surge and explaining, ‘We have to raise prices, and here’s why.’ I have a small-business client who owns a restaurant that serves Lake Erie perch. All of a sudden, Americans across the water started to understand that Lake Erie perch is really, really delicious. Within two months, the cost of the fish had skyrocketed. He had a choice: Either stop selling perch or tell his customers the price was going up. He reprinted his menus with a little blurb explaining why the price had increased. I asked him if there was any negative effect on sales, because what was once $14 on the menu went to $28. He said none at all. But if he were to double the price and not give a reason, you’d see sales drop and people upset.”

–Noah Fleming, Founder, Fleming Consulting & Co., Kingsville, Ont.

Get strategic with discounts

“The easiest way not to seem like you’re gouging your customers is by offering discounts in slow periods rather than raising prices in busy ones. Restaurants do surge pricing by making drinks half-price early in the evening or letting kids eat free on Tuesdays. At different times, fewer people want to eat there, so they change their price to respond to that. If you offer discounts during unpopular times, people will happily come.”

–Jonathan Hall, Head of Economic Research, Policy & Legal, Uber, San Francisco

Do good to offset the not-so-good

“If there’s low supply and high demand, it’s going to drive prices up, but the reverse is just as true. With the Tragically Hip’s tour, where the ticket supply is low, prices will initially be high, but they will stabilize over time—often ticket prices drop as we get closer to events.

“We don’t take the negative backlash lightly. We’ve partnered with a variety of charities and non-profit organizations to give back to various causes, including, in the case of the Tragically Hip, making donations to the Sunnybrook Foundation [supporting the Toronto hospital where singer Gord Downie is undergoing cancer treatments]. This is something we do across the board, both to address negative feedback and because we think it’s good to give to good causes.”

–Jeff Poirier, Country manager, Canada, StubHub, Toronto

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This article is from the August 2016 issue of Canadian Business. Subscribe now!

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