Dynamic Pricing in Licensing

With the festive season approaching, many hospitality businesses are gearing up for one of the busiest times of the year. Many operators are turning to dynamic pricing as a strategy to optimise revenue. While traditionally associated with airlines and railways, dynamic pricing is now making its way into bars, restaurants, and entertainment venues, bringing both opportunities and challenges for licensed operators.

What is dynamic pricing?

It allows operators to boost revenue during peak times by charging higher prices for drinks, food, or entry fees. During quieter periods, it can drive footfall by offering lower prices. Automated systems, guided by algorithms or manual intervention, often handle these adjustments.

Is it legal? Yes —but proceed with caution

Dynamic pricing is legal under UK licensing laws, provided it adheres to the conditions of your licence. However, businesses must carefully balance their pricing strategies to avoid breaching the Licensing Act 2003’s, operators must ensure their strategies do not promote irresponsible drinking.

Operators should avoid falling into these common pitfalls:

• Irresponsible Promotions: Special offers, such as steep discounts during low-demand periods could unintentionally encourage binge drinking.
• Customer Perception: Sudden price hikes may lead to negative publicity if not communicated clearly. Transparency is essential to avoid alienating customers.

Why consider dynamic pricing now?

The current economic climate poses significant challenges for hospitality operators. Rising labour costs, driven by the Labour Party’s Autumn Budget, and a 10% increase in the National Living Wage, have added to already high operational expenses such as energy costs and supply chain disruptions. In this environment, dynamic pricing can be a lifeline, enabling businesses to offset these pressures and remain profitable.

With the festive season historically accounting for a large proportion of annual revenue, events like Christmas parties and New Year’s celebrations present the perfect opportunity to test and refine dynamic pricing strategies.

Key considerations for operators

Operators considering this should bear the following in mind:

• Plan Promotions Carefully: Ensure all pricing complies with licensing conditions to avoid promoting excessive alcohol consumption.
• Communicate Clearly: Display policies clearly to prevent customer complaints or accusations of breaching unfair Trading Regulations 2008.
• Monitor Customer Feedback: Use the festive season as a trial period, gathering feedback for future improvements.
• Stay Compliant: Maintain compliance with Licensing Act 2003 objectives to support responsible drinking and public safety.

Dynamic pricing presents an opportunity to increase profitability, especially during peak periods. But as scrutiny of licensing strategies grows, businesses must implement this model responsibly. Careful planning and adherence to regulations can make it a win-win for both operators and customers.