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All sorts of consumer-facing companies seem excited about the potential to use artificial intelligence to set prices. There’s only one problem—consumers hate it.
So-called dynamic-pricing strategies offer the possibility of tweaking prices according to changing external circumstances, shifting demand, and even individual consumer situations. If combining the practice with cutting-edge technology sounds alarming, you’ve identified the problem companies are facing: how to talk about their AI-driven pricing plans without scaring customers, sparking backlash, and drawing terrible press and even legislative scrutiny.
“As soon as you talk about dynamic pricing, there is immediate repulsion by consumers,” says Stephan Liozu, chief value officer at Zilliant, a pricing management and optimisation software firm. “There’s no positive first impression with the consumer.”
This has long held true for examples like simple price gouging (jacking up prices when consumers have limited options, such as for gas or ice after a natural disaster), but sophisticated tech-driven iterations are just as reviled. “There’s a lack of understanding of why this is done, so the consumer thinks it’s all about profit,” Liozu says. “And in a way, it is.”
In a world where backlash can be spread rapidly on social media and amplified by the traditional press, that’s a dynamic brands can’t shrug off.
The latest example involves an industry already known for opaque pricing strategies. In an earnings call in July, the president of Delta Air Lines noted that the carrier is experimenting with ways to use AI to generate “a price that’s available on that flight, on that time, to you, the individual.” Delta already uses AI to drive personalised pricing on 3% of its flights, he added, and aims to bump that to 20% by the end of the year.
When this was reported, it sparked a rush of criticism from consumer advocates and politicians. Arizona Senator Ruben Gallego called it “predatory pricing.” Admittedly, the critics had little if any specific knowledge of the factors Delta’s AI pricing procedure actually entails, but that’s sort of the point of the criticism. In the absence of transparency, it’s easy to invent Black Mirror-like scenarios.
Think about one popular hypothetical: AI deduces you’re going to a funeral and will pay more than usual for a flight. Delta has denied that anything like this has happened or is planned, and insists its pricing is based on interpreting market conditions, not individual data.
Dynamic pricing isn’t exactly new; you’ve experienced it if you’ve ever purchased off-season theme park tickets or travelled in peak holiday windows. That doesn’t always mean outright price gouging or unfair price manipulation. But the idea of turning to sophisticated and inscrutable technology to bolster the practice can feel unnerving, perhaps especially as it works its way into everyday categories from fast food to retail.
Liozu, the pricing expert, has argued that ultimately, dynamic pricing is just a tool, and its impact is shaped by human decisions: “People decide what data goes into the algorithm. People choose what variables it prioritise. People determine the thresholds for price changes and approve the pricing strategies the algorithm supports.” But AI critics and enthusiasts alike tend to focus more on the power of the algorithms.
There’s a bigger fear (and likelihood, Liozu suggests) that the practice will spread across all sorts of categories, especially online. A January Federal Trade Commission report on what the agency termed “surveillance pricing” found that “details like a person’s precise location or browser history can be frequently used to target individual consumers with different prices for the same goods and services.”
That would be a big change: Set prices have been routine since they replaced individual bargaining in retail scenarios in the late 19th century. And Delta is not the first to face a backlash in response to disclosing pricing experiments.
Last year, Wendy’s endured a wave of criticism after its CEO mentioned during an earnings call that the burger chain’s new digital menu boards might enable “dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.” He did not use the term surge pricing—associated with ride-share services—but much of the news coverage of his statements did. Eventually, Wendy’s explicitly said it had “no plans” to raise prices at busy times.
The Delta incident brought even more critical scrutiny, and that may be because the airline industry is already associated with highly variable pricing that can seem to consumers like a black box. Add AI to the mix, and it’s like tossing a heavy blanket over the black box, leaving customers feeling powerless.
As Gallego and other senators argued in a statement, AI-fueled pricing will “likely mean fare price increases up to each individual consumer’s personal ‘pain point.’” Delta denied that, too, in a statement reported by Reuters, assuring the senators (and fliers): “There is no fare product Delta has ever used, is testing or plans to use that targets customers with individualised prices based on personal data.”
It’s not clear how much scrutiny will continue from the FTC under the Trump administration, which has signalled a light regulatory touch on AI. But that is unlikely to resolve the fears and pushback of many consumers.
Liozu argues that companies moving toward AI-driven dynamic pricing need to operate with more transparency and communication, thinking in terms of “explainable AI.” That means they also need to tweak their actual behaviour: “Do pricing research around what is too much for consumers, right? How frequently do you change your prices? We need to figure out in dynamic pricing what’s the floor and what’s the ceiling after which it’s considered unfair,” he says.
Most important, Liozu adds, companies need to communicate that to consumers. Gallego complained that “Delta is telling their investors one thing, and then turning around and telling the public another.” Companies don’t seem to have figured out how to talk to consumers about AI-guided pricing strategies in ways that show they care about the consumer impact. As Liozu puts it: “You need to be able to tame your algorithms.”
ABOUT THE AUTHOR
Rob Walker is a journalist and columnist covering creativity, design, technology, work, cities, the arts, and other subjects. For Fast Company, he writes Branded, a weekly column devoted to the intersection of marketing, pop culture, and current events — from presidential politics to the rise of AI, from stealthy design details to objects that shape the zeitgeist.