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The term, surge pricing is sending shivers down consumers’ spines these days, but a lot of folks aren’t even sure what it means. The term surge is defined by Merriam-Webster Dictionary as actively rising and falling. Let’s explore the implications of surge pricing on those of us who prefer living on the cheap.
What is surge pricing?
Surge pricing is actually a way of setting the price of a product or service in which the price changes according to how much demand there is for it at a particular time…based on…how many people want to buy it or pay for it (dictionary.cambridge.org).
For example, if you’re headed to your favorite drive-thru coffee spot at 7:30 a.m. and there’s a very long line of cars – lots of people means lots of demand. Possibly your favorite drive-thru raises their prices for their coffee just during that morning rush. The demand is greatest at 7:30 a.m., so your favorite coffee spot is guaranteed a huge profit. Why shouldn’t they raise their prices when demand is high?
Why are companies using surge pricing?
Companies are using surge pricing because they can. There’s some interesting reasons companies are using to answer this question.
According to a LinkedIn article on surge pricing, it balances supply and demand so we consumers don’t spend frivolously during peak times so more products are available for those who truly need it. (Article: Unveiling the Power of Surge Pricing: Pros, Cons, and Future Trends, 10/8/2023)
Surge pricing has also been called Uber-pricing. Uber practices surge pricing and has for quite some time. Have you ever hit LAX during rush hour? Your ride-share (Uber or Lyft) to your destination costs more. Amazon, Airbnb, and Lyft all use demand-based surge pricing too. Remember how scarce the toilet paper was during the pandemic? TP prices soared as a result. Companies’ profits peak too as a result of surge pricing.
What does this really mean for customers?
Let the buyer beware – remember that old saying? If it’s a product you need during peak time, you may not have much of a choice. Again, using the example of the scarcity and price surge of toilet paper during the pandemic.
You decide, if waiting in the drive-thru line is worth it to you instead of brewing your own coffee at home, that’s your decision, but you know you’ll pay more for that cup of coffee during rush hour. If you want to go to a tropical island and stay in the best Airbnb, along with everyone else, you’ll pay more. If you can take your trip off-season, pricing will decrease.
We’ve lived with demand-driven surge pricing probably since capitalism began in the United States a few hundred years ago. Wendy’s, coming out recently honestly stating they’re thinking about implementing surge pricing and the eventual backlash they received gives some hope to consumers. We still have a voice and we still have choices where and when to spend our money.
