While dynamic pricing has been around for decades, Delta Airlines has recently come under fire for announcing that it would increase its use of generative AI for flight pricing from 3% to 20% of domestic flights by year-end.

"It's not that new, both dynamic pricing and personalized pricing, but it's the way you do it and the way you frame it that I think for Delta was causing the most backlash," said our analyst Suzy Davidkhanian on a recent “Behind the Numbers” episode.

A critical distinction

The fundamental difference between dynamic and surveillance pricing represents a crucial ethical boundary for retailers and service providers.

"Dynamic pricing is when the item changes prices based on the time of day or the location so that there's a smoothed out demand curve. And that feels fair," said Davidkhanian.

Surveillance pricing, however, uses individual consumer data—location, browsing history, loyalty status, demographics, and potentially even mouse movements—to determine what price to show a specific person.

"Surveillance pricing is different,” said our analyst Zak Stambor. “And it feels very different to the consumer because it's about you. It's about your personal data and how your personal data is being used."

This distinction matters significantly to consumers—68% of consumers agree that dynamic pricing is a form of price gouging, according to data from CivicScience, and surveillance pricing may create even stronger negative reactions.

Consumer trust hangs in the balance

When Delta's president Glen Hauenstein told investors about plans to offer prices tailored "to you, the individual," it triggered immediate backlash, including a formal letter from US senators expressing concerns about data privacy and consumer costs.

"It felt icky. It felt like Big Brother," Stambor said, noting that Delta later backtracked when responding to lawmakers, claiming they weren't targeting individuals but using broader data pools for dynamic pricing.

This inconsistency highlights a critical challenge for companies: Maintaining consumer trust while optimizing pricing strategies.

"There seems to be a trust gap, and the company isn't authentic and transparent," said Davidkhanian.

The timing is particularly problematic as consumers are "hyper-attuned to price and value and they don't want to feel like they're being squeezed," according to Stambor. "If they feel like they're being squeezed because of who they are, where they live, what they looked at previously online, it makes them feel distrustful of the company."

Finding the balance: Transparency is key

Despite the challenges, there are potential benefits to dynamic pricing when implemented transparently and ethically.

Stambor highlighted a Dutch grocer using dynamic pricing to reduce food waste by offering increasing discounts on products approaching expiration dates.

"Ultimately, it is good for the consumer, they get a deal, and it's good for the grocer because they move products that they otherwise would just throw away,” he said.

The key factor is transparency.

"If the retailer is open with you about how they're doing it, then that is good for your pocketbook too, and it's good for the environment," said Davidkhanian.

As AI capabilities advance, companies must carefully consider how they implement pricing strategies. Those that prioritize transparency and consumer trust while clearly distinguishing between market-based dynamic pricing and individual-focused surveillance pricing will likely find the most sustainable path forward.

Listen to the full episode

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