Surge Pricing Is Just The New Dynamic Pricing |

Surge pricing goes back ages, before it was even known by that name. Restaurants offer “early bird” discounts for diners willing to eat their meals before 6 P.M., for example. Tuesday night dinner discounts and lunch buffets are also a part of restaurant pricing history.

One of surge pricing’s innovators is M. Douglas Ivester, the former chief executive of Coca-Cola.

Back in 1999, Ivester came up with the idea of raising the price of the company’s sodas on hot summer days. The company’s vending machines would be equipped with thermometers, and, when the temperature rose, the vending machine would raise soda prices for thirsty customers looking to cool off.

It was an innovation that never saw the light of day. Once customers got wind of the idea, the word “price gouging” was tossed around in a rather unflattering way. To make matters worse, Pepsi took the opportunity to publicly accuse the company of taking advantage of its customers.

The soda wars weren’t the best chapter in American history. Coca-Cola failed because one can’t simply raise prices based on demand, as that is the sort of thing that rapidly angers consumers.

“Those are the situations where consumers really get up in arms. If you’re going to take advantage of the demand, you have to be able to say with a straight face that there’s a benefit that goes with it,” Mike Marn, director of pricing services at McKinsey & Company, told The New York Times in 2005.

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Surge Pricing Is Just The New Dynamic Pricing |