‘Happy hour in reverse’: where dynamic pricing may creep further

Paying a premium for a flight during the school holidays or a cab at peak hours might be expected but fluctuating charges – otherwise known as surge pricing - could become the norm in other industries, according to experts.

Surge pricing, widely known as dynamic pricing, is when retailers adjust their prices in response to supply and demand – meaning customers are charged higher prices when demand spikes, Omar Merlo, the academic director of strategic marketing programmes at the Imperial College Business School, says.

The Wardour Street branch of O’Neill’s in Soho, London, has implemented an additional £2 charge to pints ordered after 10pm. This means a pint of Brewdog IPA that costs £7.40 during the day will cost £9.40 after 10pm. The policy has been in place since 2022, to comply with the licensing requirement for more security staff.

Some customers expressed their disappointment on social media at the price bump. One wrote on X: “This new idea of dynamic pricing is ridiculous, greedy and needs calling out. Very short-sighted.”

However, another noted that charging more during busier periods is not too dissimilar to discounts and offers at quieter times. “I was going to say I thought it was awful, but is it not simply ‘happy hour’ in reverse? ” they wrote on X.

Though it has angered many, O’Neill’s is not the first to introduce surge pricing and Dr Florian Stahl, a professor of marketing from Mannheim Business School, said this pricing model was likely to permeate into other areas, such as festivals and energy.

“We can expect surge pricing to expand into several industries in the UK, particularly in sectors with fluctuating demand patterns.

“This might include public transportation, where prices may increase during peak travel times or major events like concerts and festivals,” he says.

Here are other industries that have implemented a form of surge pricing.

Ride hailing apps

The cost of a cab using ride hailing apps changes frequently, but Uber and Bolt also practise surge pricing.

Isabella Coolican, an associate in the competition team at Freeths law firm, says prices tend to become more expensive on Friday or Saturday evenings, during bad weather or after a concert or sports match because the demand exceeds supply.

This is why “the same routes on an average Tuesday morning may be half the price,” she adds.

According to Merlo, these cab hire services “use surge pricing fundamentally to make sure that people who order a car are those that really need it” and to “get the drivers out when they’re most needed”.

“If I’m desperate for that Uber car when it’s crowded, I’m quite happy to pay more to get that car, and when I get it, I’m happy that I get it. If it gets too expensive, maybe you’re happy to jump on a tube instead.”

Airlines and hotels

Airlines have long used dynamic pricing models to determine the cost of flights. This is why flights during peak season tend to cost more.

Hotels also use seasonal pricing, which involves adjusting prices based on the time of year. This is typically linked to demand, says Stahl, and is an area that surge-style pricing might creep further into.

“Hotel prices in major cities or tourist destinations can fluctuate due to high demand during peak tourist seasons, events, or local holidays.

“In the hotel and accommodation industry, surge pricing might be implemented in real time based on demand, weather or last-minute bookings, affecting both hotels and short-term rental platforms like Airbnb.”

Hospitality

Restaurants, bars and pubs may increase prices during busier times such as celebrations or match days. However, this is something we may see on a more regular basis, Stahl says.

Stonegate Group, which is Britain’s largest pub group and owns chains including the Slug & Lettuce and Yates’s, said it was raising prices at 800 of its venues during peak times, such as weekends, to help cover costs, including staffing.

A pint of beer during the busiest periods will cost drinkers 20p more. It has previously done so during special events, such as World Cups.

However, many venues offer happy hours or discounted lunch menus during less busy hours. These types of deals entice customers and “boost sales during quieter periods,” Stahl says.

“These offers often include reduced prices, ‘buy one, get one free’ deals, or specials on select beverages. In contrast, lunch menus are available during midday hours and focus on offering discounted or fixed-price meals, often with smaller portions or limited choices to provide quick, affordable options,” he adds.

Concert tickets

Music venues have a limited capacity, so when it comes to tickets for some of the biggest performers, demand outstrips supply.

Many Oasis fans were furious after some of the tickets for their upcoming reunion tour jumped by more than double the price due to being in demand.

Shows were initially advertised at £148.50, but when fans finally reached the front of the queue, often after hours of waiting, many found that basic standing tickets had gone up to £355.20.

Merlo says consumers become frustrated if they feel they’re not getting value for money. “Usually, if [people] perceive that they’re getting more value, they’re willing to pay more. With the Oasis ticket debacle, they just got a higher price and so that leads to this kind of disappointment.”

Theme parks

To deal with a post-pandemic shortfall, there may be more surge pricing applied to prices at theme parks.

Earlier this year, Merlin Entertainments, the owner of Legoland, Madame Tussauds, and Alton Towers, said it planned to introduce surge pricing so families will pay more on peak summer weekends than weekdays.

​​The system will use machine learning to flex prices in response to supply and demand – in a similar way to that already deployed by cut-price airlines, cab-hailing services such as Uber, and some hotels.

Utilities and bills

Another area Merlo says we may see dynamic pricing is in energy and utilities, particularly because of the adoption of smart meters and internet of things (IoT) devices.

The watchdog Ofgem launched a consultation earlier this year to decide whether to introduce a “dynamic” price cap, under which British households are charged based on the time of day they use their energy. During busier periods, energy suppliers could charge more for electricity, but customers could also save money at quieter times.

This kind of surge pricing model would likely only apply to customers with smart meters on variable tariffs, Ofgem said.

According to Merlo, “with the availability of data, the availability of technology, we’re going to probably see [dynamic pricing] more and more”.

“AI technologies are allowing for a lot of these contexts in which dynamic pricing is being used, to be expanded.”