What is Surge Pricing? What Consumers Need to Know

Close up shot of unrecognizable customer sitting in her car, in driver's seat, receiving a coffee and takeaway food order from a service person at the drive through.

The news is abuzz with the term “surge pricing.” What is it exactly, and how could it affect you? From Wendy’s to Uber and Lyft, here’s what consumers need to know about this dynamic pricing phenomenon.

What is Surge Pricing?

Surge pricing is a form of dynamic pricing that involves only raising prices based on supply and demand. This is commonly observed in Uber and Lyft apps during peak travel times or big events.

In contrast, dynamic pricing, often confused with surge pricing, is a fluctuation that involves increasing and decreasing prices based on the market. For example, hotel or flight prices may increase and decrease based on the season.

In a recent PR blunder, Wendy’s CEO Kirk Tanner suggested the company would be testing dynamic pricing offerings, sparking a news and social media uproar regarding shifts in food prices. With businesses like Uber and Lyft implementing surge pricing tactics, it prompts the question, “How will surge pricing affect the market?”

What Can You Do?

With companies experimenting with dynamic pricing models, surge pricing could pose a challenge for Americans working to manage their budgets. The concept of commodities raising prices on a whim is not super consumer-friendly. Here are some steps you can take to handle surge pricing.

Be a Savvy Consumer

One way to handle surge pricing is to simply avoid it. If a business you typically interact with implements surge pricing, find a way to avoid having to pay inflated prices by finding an alternative business. Finding savvy ways to save on everyday expenses can have a big impact. For instance, if Uber or Lyft is experiencing surging rates, consider calling a Taxi instead.

Planning a vacation this year? Airbnb implements “Smart Pricing,” adjusting prices nightly based on the demand. Consider using this tactic to your advantage and choose a time with less demand or interest. Planning ahead and finding a strategic time to take a trip could save you quite a bit.

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Consider Adding Room in Your Budget

On the flip side, completely boycotting businesses that increase their prices may be considered extreme. As an informed consumer, integrating extra funds into your budget for emergency or “surging” situations could ensure you’re prepared for any unexpected occurrences. Sometimes you simply need a ride home and the price is simply what it is. Having a miscellaneous category in your budget can be used to cover you in a surge situation.

Utilizing a miscellaneous category in your budget is a great idea for several reasons. It’s always good to have a little cushion for the ebbs and flows in your life and the economy. Taking care of your budget is one great way to take care of yourself and your family. Sometimes having a contingency plan can help reduce stress in your life when things don’t go how you expect them to.

Educate Yourself

Doing research and educating yourself on topics that could affect your financial life is always a smart idea. Read a few articles about surge pricing in the news or set up a Google Alert for “surge pricing” to keep tabs on the developing story.

Keeping a close eye on the businesses that choose to partake in surge pricing could give you an advantage financially. Whether you plan to avoid these businesses, work the surges into your monthly budget or use the surging model to your advantage, staying informed is a great way to keep ahead of the curve financially.

Want more? Check out our blog, Do you Qualify for a Service Companion or Animal?

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