The following article was written by Wharton marketing professor Z. John Zhang.
Dynamic pricing isn’t new. Airlines, hotels, and ride-hailing companies have long relied on it to balance demand and supply, maximize profitability, and serve different types of customers. But in 2025, dynamic pricing is spreading rapidly across industries — from grocery retail to fast food to fashion e-commerce to tickets for the upcoming FIFA World Cup — powered by artificial intelligence, digital price tags, and real-time demand data. The current tariff uncertainties and inflation concerns are further impetus for firms to flirt with, and even embrace, dynamic pricing.
Done right, dynamic pricing can benefit both firms and consumers. Done poorly, it can trigger backlash and erode trust.
Why Dynamic Pricing Works
The economic logic is straightforward: Customer willingness to pay varies. It varies across customers, and for the same customer, across occasions and over time. A family booking a vacation months in advance has a very different willingness to pay than an executive booking a same-day flight, and almost everyone is willing to pay more for roses on Valentine’s Day than on any other day. Dynamic pricing helps companies capitalize on this variation, charging a high-willingness-to-pay customer a high price and a low-willingness-to-pay customer a low price at the right time. In the airline industry, leisure travelers secure affordable tickets by booking early, while business travelers can still find seats at the last minute, albeit at a higher price. Uber’s surge pricing — which is a specific type of dynamic pricing — not only helps match riders to drivers but also attracts more drivers into busy zones, increasing supply when it’s most needed.
The principle holds across industries. When prices reflect demand and capacity in real time, resources are allocated more efficiently, and customers often have more choice. Firms, of course, stand to reap more short-term profits by charging more to those who are willing to pay more, while accommodating those who can afford to pay only a low price, thus getting both high margins and high volumes for their products or services.
The Expanding Frontier
It is not surprising to see that several industries are experimenting with new forms of dynamic pricing:
- Retail: Walmart is rolling out electronic shelf labels (ESLs) across 2,300 stores in the U.S., enabling real-time pricing based on demand, inventory, and competition. Competitors including Kroger, Whole Foods, and Lidl are following suit.
- Airlines: Delta plans to expand AI-driven dynamic pricing from 3% to 20% of domestic flights in 2025, raising both revenue potential and questions about fairness.
- Fast food: Wendy’s is investing $20 million in AI-powered digital menu boards that adjust burger prices by time of day — higher at lunch rush, lower at off-peak times.
- Fashion: Boohoo and PrettyLittleThing are deploying AI to adjust clothing prices based on demand spikes and competitor moves, with potential ripple effects across the fast-fashion industry.
- Hospitality: Marriott has quietly extended dynamic pricing to loyalty points, with cash and points rates swinging dramatically week to week.
- Sports: FIFA announced that the tickets for its 2026 World Cup will be sold using dynamic pricing. In 1994, the last time the U.S. sponsored the game, there was no dynamic pricing unless tickets were purchased through a scalper.
The Risks of Getting It Wrong
History offers cautionary tales. Coca-Cola’s 1999 experiment with vending machines that raised prices in hot weather drew swift backlash, with critics calling it exploitative. The company shelved the idea in the U.S. Wendy’s recent surge pricing announcement triggered a similar outcry and provided a good lesson on what can go wrong with introducing dynamic pricing. Even FIFA’s announcement about future dynamic pricing did not go unnoticed, drawing a New Yok Post headline, “World Cup’s dynamic-priced tickets will cost an arm and a leg — and ruin the global game.”
Wendy’s case is worthy of some special attention. In early 2024, Wendy’s CEO Kirk Tanner announced the company’s intention to invest $20 million on high-tech menu boards that can change prices in real time. This means that a Dave’s burger can cost more during busy times like lunch and dinner. The intention here is not a bad one. By charging higher prices at busy times, Wendy’s can shift some of the demand to less busy times, reducing the peak-load staffing as well as some stress for its workers. In addition, with a smaller lunch or dinner crowd, customers would spend less time waiting for their orders at peak times. However, the prospect of dynamic pricing was immediately interpreted by the media and the public as an Uber type of surge pricing for burgers, and it was taken as another example of a greedy corporation trying to exploit customers. Critics noted that unlike Uber, higher prices don’t magically create more burgers at lunchtime and hungry customers get the short end of the stick. Not surprisingly, significant negative public reaction ensued, with “#BoycottWendys” trending on social media.
The lesson: Consumers instinctively do not like dynamic pricing or understand it. They resist when it feels like opportunism and when it is not clear what is in it for them. Even in the airline industry, where customers are long used to price variations, dynamic pricing has fueled perceptions of unfairness, making airlines a perennial symbol of consumer frustration.
The fact of the matter is that customers have nothing to fear about dynamic pricing.
When and How to Use Dynamic Pricing
Basic economics dictates that when all following three conditions are present, it is a non-brainer for a firm in any industry to embrace dynamic pricing. First, customer willingness to pay for your firm’s product or services varies over time. Second, your firm has the capability to identify when a customer is willing to pay a high or low price. Third, your firm finds a good way to communicate and implement dynamic pricing without alienating customers. Your firm can avoid alienating customers if dynamic pricing improves access, availability, or fairness for them.
The first condition is generally satisfied when:
- Demand fluctuates significantly. Airlines, hotels, and trains provide textbook examples.
- Capacity is constrained. A limited number of seats, cars, or rooms justifies price variation.
- Costs vary over time. Fresh food near expiration or energy-intensive services during peak hours benefit from flexible pricing.
- Supply can respond. Uber’s surge pricing works because higher fares attract more drivers.
The second condition is always achievable if a firm is willing to make sufficient investments in information gathering, processing, and displaying technologies. Big data and AI capabilities have certainly motivated many firms to look in the direction of dynamic pricing today. But capability alone isn’t enough. Firms must anticipate customer reaction, communicate transparently, and frame price changes around value creation rather than profit extraction. For this reason, the third condition is critical to the success or failure in implementing dynamic pricing.
Coming back to Wendy’s PR disaster, the company clarified later that they had “no plans” to raise prices when demand is high. It wants to use its digital menu boards to offer discounts and other value offers during slower periods, not to charge more during peak times. In other words, Wendy’s never wanted to embrace surge pricing, and it intended to offer what I called “dynamic discounting.” Unfortunately, that intention was lost in communication, partially due to the fact that Wendy’s was not clear about it.
With dynamic discounting, a firm starts with a fixed regular price and offers variable discounts. Such a mechanism can generate any price point that dynamic pricing can. For instance, Wendy’s can charge its price for Dave’s burgers dynamically, $6 at 11 a.m. to noon, $8 at noon to 1 p.m., and $7 at 1 p.m. to 3 p.m. However, when framed as dynamic discounting, the regular price for the burger becomes $8, and Wendy’s can offer $2 off at 11 a.m. to noon, and $1 off from 1 p.m. to 3 p.m. Dynamic discounting is then much more palatable to customers because nearly everyone gets a trophy. “Everyone gets a trophy” may not be the smartest idea in competitive sports, but it can help to endear customers to dynamic pricing.
Similarly, with dynamic discounting, Coca-Cola could have easily set its regular prices based on hot weather and offered colder weather discounts to avoid consumer backlash. FIFA can use it to shift media and customer focus away from speculating on outlandish prices “for a top-tier seat for the July 19 final at East Rutherford, New Jersey’s MetLife Stadium.”
Dynamic pricing is becoming a competitive necessity.
What Consumers Can Do
The fact of the matter is that customers have nothing to fear about dynamic pricing. If anything, dynamic pricing shifts power to savvy consumers. Those who monitor fluctuations, book at the right time, or shop across platforms can consistently secure lower prices. In a dynamic pricing world, knowledge is power.
Stock prices are dynamic. Because of it, savvy investors can buy low and sell high. For goods and services without such cycles, consumers still benefit from dynamic pricing in many ways. For instance, Amtrak tickets between Philadelphia and New York can vary from $10 to $200, and informed buyers can exploit the swings by being vigilant and diligent. Without dynamic pricing, Amtrak would have to charge a much higher everyday price to everyone, its train service would become much less accessible, and trains would run with many more empty seats.
Yes, under dynamic pricing, some consumers will inevitably pay higher prices. However, when done right, the consumers who face higher prices will also be the ones who could afford to pay more and get more in return. For instance, business travelers can pay more and will pay more under dynamic pricing. In return for the higher prices, they can get a last-minute ticket or a ticket on a convenient schedule any time business calls for a trip.
If you are still not convinced that you will benefit from dynamic pricing as a consumer, you may feel much better hearing that the cumulative profits for the airlines industry since the deregulation in 1978 are zero or slightly negative. This is the industry that pioneered dynamic pricing in modern times and that always stays on the cutting edge of the craft. With all the pricing sophistication the industry can muster, it fails to reap more profits because dynamic pricing has fundamentally changed the game for the industry to the benefits of all consumers.
The best analogy I can use to explain the situation is American boxing. The basic rules for American boxing are that you can use only two fists and punch opponents only above the waist. However, in Thai boxing, you are allowed to use your two fists as well as two feet and punch and kick the opponent anywhere. It’s definitely a more competitive and bloodier game, as the opponents have more flexibility and more weapons to hurt each other. Ironically, while dynamic pricing gives an adopting airline the advantage of using more price points (equivalently both fists and two feet) to compete against the opponent staying with conventional pricing (two fists), the advantage disappears when the opponent also adopts dynamic pricing. When all airlines use dynamic pricing, they are playing Thai boxing instead of American boxing — each opponent has more pricing points and flexibility to steal rivals’ customers. Not surprisingly, more sophisticated dynamic pricing may offer an adopting firm some fleeting unilateral advantages, but its collective use will benefit consumers and society at large.
The Bottom Line
Dynamic pricing is becoming a competitive necessity. But the winners won’t just be those with the most sophisticated algorithms. The true winners will be the companies that deploy it responsibly: balancing profitability with fairness with customers in mind, designing transparent systems, and ensuring customers feel served rather than squeezed. Customers will accept volatility if dynamic pricing is rooted in supply-and-demand logic, not in opportunism, and if customers feel they also get more from it. Customers will feel they’re getting more if you frame dynamic pricing as dynamic discounting.
