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Price Transparency VS Pricing Transparency

October 2016 Communication, Pricing

Most consumer-facing companies strive for price transparency. Understandably, consumers want to know how much a good or service will cost before they make a purchase—but what about pricing transparency?

Not transparency over the final price, but transparency over the pricing process?

It’s important to separate the two, because companies can exhibit one or the other, or both, or neither. Companies can change their approach over time as well. Let’s take a look at some quick examples.

Price Transparency

Amazon makes its prices very straightforward. Especially for its Prime customers, the price that you see is what you pay, without even a pesky extra few dollars for shipping added during checkout. Its pricing, however, is not transparent.

Pricing Transparency

For Amazon Web Services (AWS), on the other hand, while your final price depends on your usage, the pricing is transparent down to the hour. While you may not know the amount due ahead of time, you know exactly how they will arrive at that number.

Both

Some companies do both, showing their customers not only the final price but also how they arrive at it. Say, for a bundle, breaking out the price of each individual unit. And some companies, such as Buffer, take pricing transparency even further by laying out exactly how they spend and therefore justify their revenue.

Neither

So, a company may have price transparency, pricing transparency, or both. What about neither?

With health care, most of the time the price of a service is unknown until long after the service is completed and a bill arrives in the mail. The bill will usually indicate how its total relates to the billed amount and the amount paid for by insurance, but there is very little transparency into how either of those final two were determined.

Changing Transparency

And there are even some companies who have started out exhibiting one type of transparency only to shift to another.

For much of its existence, Uber would not give you a final price until after the trip was completed. They would, however, indicate whether any amount of surge pricing was under effect by displaying a multiplier to the normal base rate. Much of its struggle with getting customers to accept this type of dynamic pricing revolved around making them acknowledge the additional price multiplier ahead of time. This was pricing transparency.

In January, I wrote that Uber needed to visualize the consumer benefits, not just the consumer costs, of its dynamic pricing in order to improve the customer experience. Instead, they have decided to hide dynamic pricing completely. The change started to roll out this spring. When customers now request a ride, they are shown a single, final price for their trip. No range, no multipliers, no notice of surge pricing in effect. “No math, no surprises”, as Uber puts it. This is price transparency.

It’s quite the change. Uber is now transparent in price but opaque in pricing.

Which is better for customers? For each individual transaction, I may find it easiest to have total price transparency: Uber now gives me the total amount I will be charged before I request a ride. Barring a change in destination, this will be the same number that appears on my credit card. That is very straightforward compared to having to think about a potential range of prices or calculating a percentage increase from a base fare.

However, there is a downside for the customer to losing pricing transparency. Without a notification that you are being affected by a surge in demand, it’s harder to compare prices. If you are going to a new area after work and you see that it will cost you $16.51 to leave now, how does that compare to the price of that route at a different time? Seeing the price in terms of, say, 1.5x normal rates gave useful information that is no longer available.

Uber has clearly decided that the clarity of a single price trumps knowing how the service arrives at a price. But drivers still see more information about where and when surge pricing is in effect. It is better for Uber to have customers see one price and not the calculations that go behind that pricing, but the same is not true for its drivers. We probably haven’t seen the final iteration of their pricing structure.

Closing Thoughts

Just as price is an important aspect of branding and marketing, so is the amount of transparency of both price and pricing. Different industries lend themselves to different levels of each, but especially with consumer markets there is a strong push toward price transparency. Whether this is always in the best long-term interest of the consumer, however, is uncertain.

What other good examples of either radical transparency or opaqueness do you have in your industry? Or other companies, such as Uber, who have transitioned from one type of transparency to another?



About the author

Kyle Thompson-Westra is a Consultant at Wiglaf Pricing. His background includes digital strategy, marketing analytics, and international relations. He holds a BA from Tufts University and an MBA from DePaul University.

Kyle Thompson-Westra
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