I realized that this was an example of “surge pricing” by the fast food industry, where prices for certain goods and services vary more dynamically than normal, in response to supply and demand pressures – to the extreme of responding to supply/demand changes that can vary prices day-to-day, and even throughout the day.
The fast food industry’s goal is to get a better return from its fixed costs, by bolstering soft drinks sales, during a time of day when drink sales (demand) is lower, but when drinks are still available and the product will still be profitable – when sold at almost any price.
Discounted and Premium Pricing
This idea of trying to shift demand to available supply through surge pricing, isn’t an entirely new strategy. Recognizable examples of businesses linking supply and demand to products and services would be things like “early bird” dinner pricing, happy hour discounts and charging premiums for time-sensitive services such as next day delivery (vs. next week), all driven by customer demand.
The Bible of Internal Equity
Surge pricing of both discounted and premium pricing of goods and services makes complete sense and is a logical extension of the economic model of supply and demand, but can it work when applied to people and the labor market?
Many will recognize a very early variation on labor surge pricing, documented in the Bible (Matthew 20:1-16). In that situation where employees worked varying portions of a day – and all received the same compensation, may be the first documented example of labor surge pricing and perhaps also the earliest example of employee reaction to perceived pay inequity in recorded history. Good to know that internal equity was an issue even during biblical times, and the employer’s explanation back then seems much simpler than what we typically come up with today. Ultimately, the idea of labor surge pricing during biblical times probably has not changed substantially in the intervening years, although the key lessons may be a little bit different today.
Labor Practices Are Changing
But how viable is this proposition of differential labor pricing, principally tied to supply and demand and exigent timing?
Is it conceivable that to maximize efficiencies, organizations would hire similarly-qualified employees at very close, but still different points in time, and be willing to compensate these employees differently – in response to the supply and demand signal at that time? This also assumes a future ability to accurately assess supply and demand conditions in near real-time (a capability which is almost certainly coming . . . .).
The emergence of the global online marketplace, which facilitates the bidding and fulfillment of tasks and professional services (TaskRabbit, Fiverr, etc.), is less an example of labor surge pricing, but still an indicator of the rapid changes occurring in the global labor market – and how those changes affect the dynamics of value exchange and pricing of labor.
Will the increasing prevalence of the contingent workforce influence organizations’ response to labor surge pricing, given that potential conflicts associated with internal equity will likely be muted in a workforce that is more temporary, as opposed to one that is permanent and stable?
And what about the challenges (psychological, legal, practical, etc.) of sustaining those economically-rational pay differences originally established at-hire, driven by short-lived supply and demand signals – and the organization’s corresponding monetary response? If the transient workforce transitions to permanent, the employer who ignores these obvious pay inequities would seemingly do so at their own peril.
Early Hires vs. Early Bird Specials
Clearly surge pricing is here to stay. Equally clear is that the economics of soft drink marketing or early bird dinner pricing at the local buffet are different from labor market dynamics and both how and how well those integrate with existing human capital and compensation practices. The question is, how much different are those dynamics, really?
Everyone probably has a different perspective. What’s yours?
Original image "Labor Surge Pricing" courtesy of Chris Dobyns.