Tag: dynamic pricing

Hustlers, beats and Wendy’s CEO

More years ago than I care to remember, I took a college course titled “Hustlers, Beats and Others.” Taught by Ned Polsky, the course was described as an exploration of “deviant branches of American life.” Chief among them, as I recall, was the subculture of pool hustlers, for whom Polsky evinced a great fondness.

But the fact I remember most clearly from that semester was the news that loan sharks charged 20% interest. A week!

Twenty percent interest rates are now commonplace, if on an annual rather than weekly basis, but even that seems to me only slightly less outrageous than the mob’s cut. In a world in which inflation is less than 3% and wages grow annually by about the same amount, isn’t 20% to 24%—the range of most credit card interest rates—too high? And what do we mean by “too high”? Can something be too costly if someone is willing to pay its price? What’s the difference between maximizing profit and price-gouging? Why does North Carolina have a usury limit of 8%, but the usury limit in Arizona and Rhode Island is 36%?

Too much? Too many obscure questions? Blame Wendy’s. And bear with me: this post eventually will get around to campgrounds and RV parks.

It’s been nearly a month since the fast-food hamburger chain’s CEO, Kirk Tanner, kicked up a shit-storm of consternation among his customers by telling industry analysts that Wendy’s would start experimenting with dynamic pricing in 2025. There was a lot more, having to do with digital menu boards and generative AI and “suggestive selling”—a phrase that itself is rather suggestive—and Tanner never used the words “surge pricing.” But “surge pricing” is pretty much how the hamburger-eating public got the story, and quite quickly, and the resulting kerfuffle continues to this day.

Amid a widespread backlash that included calls for boycotting the chain, Wendy’s tried to walk back Tanner’s comments by declaring it has no plans to raise prices “when our customers are visiting us most,” a curious qualification. Any pricing changes it might implement “would be designed to benefit our customers.” Digital menu boards, for example, will “allow us to change the menu offerings at different times of the day and offer discounts and value offers to our customers more easily.”

See what they did there? Dynamic pricing simply gives Wendy’s the opportunity to lower prices, not to raise them. Dynamic pricing is a good thing for consumers.

Let’s call this out for the BS it really is. Number one, the comments that triggered all the fuss are part of a blizzard of adjacent phrases—surge pricing, demand pricing, dynamic pricing, competitor pricing, supply and demand, real-time market data, pricing algorithms, price fixing, price gouging—that revolve around one fundamental purpose: to increase profits by charging whatever the market will bear. Some of that might be legal, some of it may not be. What’s legal today may be illegal tomorrow and vice versa, or be legal in one state but not in another. But throughout, the game is all about revenue “enhancement.”

Number two, Tanner’s comments were made not in a newspaper or TV interview but on an earnings call, whose primary purpose is to provide analysts with the information they need to predict how well a company will perform financially. That information, in other words, tends to stress what the company will be doing to increase profits, not lower them. (Not that CEOs are allowed to lie, or fail to disclose adverse information.) The initiatives CEOs will describe are meant to fatten the bottom line, by raising prices or lowering costs or increasing efficiencies.

But the biggest sleight-of-hand has to do with Wendy’s protestations that it will use dynamic pricing only to lower prices, not to raise them—which, aside from whether that declaration can be trusted, raises the question: lower them from what? And to answer that, we can turn from the food and beverage industry to its sister industry, the hospitality business, which pioneered this kind of deception.

Go to any hotel or motel and look at the card that’s usually mounted on the back of your room door, and you’ll see what’s called the “rack rate.” Unless you’ve had the bad luck of booking a room in the path of the solar eclipse (for example), you’ll see an impossibly high rate that you’d never dream of paying and may congratulate yourself on getting a “deal.” Of course, nearly everyone else in the building also got a deal, which is just another way of saying you didn’t get stiffed. The only true value of the rack rate to you as a customer is that it establishes the maximum you might be charged, but it certainly doesn’t help you understand what a “fair” rate might be, or what that same room may cost next week or next month.

“Rack rate” got its terminology from the hotel rate cards that were kept in a metal rack at the front desk. The campgrounds and RV parks version of such cards used to be printed sheets that spelled out site rates, but those increasingly have become just a memory—no posted rack rates for campers! That absence, however, hasn’t kept the industry from embracing dynamic pricing with a salivating eagerness, propelled by the promise that doing so will yield higher profits—which it has, and with remarkably little pushback from the camping public. Wendy’s customers and RVers, it seems, must occupy non-intersecting portions of the Venn diagram of consumerism.

(Campgrounds and RV parks, it should be noted, also have their own version of “let’s give you a deal” by offering so many discounts—AAA, senior citizen, KOA, Good Sam, first-responder, active military, retired military and on and on—that anyone who can’t get at least 10% off his or her site rate could be sold a bridge in Brooklyn.)

The common denominator of all these pricing schemes, however, is their lack of transparency to the average consumer. Indeed, the more that pricing and payments are computerized and driven by algorithms, the less a customer can understand his or her options and the more of an upper hand is gained by businesses over their customers—customers who repeatedly are assured that they’re the winners, regardless of the asymmetrical relationship in which they’re engaged. Indeed, industry “thought leaders” urge all kinds of businesses to hammer the “good news.”

Take, for example, a recent analysis of Wendy’s missteps by Sherri Kimes, an emeritus professor at the Hotel School at Cornell. “Always frame things as a gain for customers,” she wrote in QSR Magazine, a food industry publication. “Rather than saying that you’re going to charge more at certain times, talk about the discounts or special promotions that customers can get. . . . Make sure customers are aware of when they can get better prices. No surprises here! . . . Keeping them in the loop maintains trust and keeps them happy.”

Maintain trust, indeed. The Hotel School at Cornell, it should be pointed out, is cranking out a steady stream of Kimes acolytes to further shape the hospitality industry—inside and outside, hotels and campgrounds alike. Today’s hustlers may not break your kneecaps if you don’t pay up, but they have something far more effective than a baseball bat: college educations and computerized pricing and a shameless willingness to convince you how lucky you are to be doing business with them.

And just wait until they start harnessing the power of AI. . . . .

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A warning shot about RV price fixing

The use of algorithms to set prices of common goods and services, enabled by widespread computerization and data scraping, has seeped into various parts of the economy. Proponents claim such “advances” simply promote greater market efficiency, but that increased “efficiency” benefits just the price-setting side of each transaction—buyers don’t have similar access to data that would enable them to get a more efficient price.

RVers and campers have experienced this problem first-hand. It wasn’t so long ago that RV parks provided rate sheets spelling out how much a particular site would cost on a particular night, but these days that kind of transparent pricing has been supplanted by “dynamic pricing.” How much you’ll be charged for an RV site will depend not just on the day you want to reserve, but on the day—and even time of day—when you make the reservation. Of course, which day will get you the best price is not something a consumer can learn, not least because the “dynamic” piece of that pricing system makes this a moving target. But this system wasn’t designed to benefit customers, anyway.

The industry rationalizes this two-step as simply a response to supply and demand, neglecting to acknowledge a third piece of today’s pricing puzzle: what is the competition charging? Back in pre-algorithmic days that wasn’t a question to be answered easily, since it required obtaining and looking at numerous published rates or contacting other campground operators directly, which not only was a lot of work but also raised all kinds of messy price-fixing and antitrust concerns. But then the campground industry embraced online reservation systems, and as the saying goes, That. Changed. Everything.

Or not. Digitally-driven sales and marketing have made price collusion a lot easier to implement, but the legal (and ethical) considerations have not gone away, making push-back inevitable.

This coming Tuesday, a group of U.S. senators will be introducing legislation, dubbed the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, to make it illegal for landlords to use algorithms to artificially inflate rents or reduce the supply of housing. The proposed law apparently was catalyzed by an extensive ProPublica investigation, on which I reported in the fall of 2022, that found software used by competing landlords was collecting their proprietary data and feeding it into an algorithm that would “suggest” what rents they should charge. As price setting goes, according to bill sponsor Sen. Ron Wyden of Oregon, that’s “no different from doing it over cigars and whiskey in a private club.”

Although Wyden said he believes existing antitrust laws already apply to what data-compiling companies like RealPage and Yardi are doing, “I want the law to be painfully clear that algorithmic price-fixing of rents is a crime.” Next week’s proposal, therefore, brushes aside industry protestations that it’s only providing information—in its words, making price-fixing collusion “implausible”—by make it illegal for property owners to contract with companies that coordinate rent prices. It also would bar two or more rental owners from coordinating on such information.

The parallels between rental housing algorithms and those now available to RV park owners are stunning, as manifested most widely by Campspot, easily the big dog among campground reservation software providers. The Grand Rapids-based booking agent last year made 3.1 million reservations across more than 2,100 campgrounds, processing in excess of $1.9 billion. But as reported last July, Campspot also introduced a reporting dashboard for its RV park clients that leverages all the reservation data it is constantly accumulating, enabling “individual campground owners to compare their metrics, such as average daily rates, occupancy rates and revenue per available site, with what everyone else is doing—and to make adjustments as desired.”

Campspot’s helpful guidance to campground operators seems to fall a step short of the problem next week’s Senate bill will address among landlords, in that it apparently doesn’t suggest a specific site rate; it just provides all the information for campground owners to reach their own conclusions. Or as Campspot puts it, “With these tools at their fingertips, campgrounds are able to stay ahead of the competition, make confident pricing decisions, and unlock their park’s full potential.” Collusion? Nah—that’s so implausible.

Compared with the massive rental housing industry, RV parks and campgrounds are just an economic blip, and so may readily slip under the radar of antitrust regulators and lawmakers. But to the extent that RV parks increasingly serve as part of the nation’s housing stock, it wouldn’t be surprising to see the introduction of a Preventing the Algorithmic Facilitation of RV Park Cartels Act, enabling the public to make confident pricing decisions when reserving campground sites.

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In a lockstep march to higher prices

Fair warning: this is a lengthy post, and would be much longer if I hadn’t already sketched out some of the context last October, in a post headlined “Can ‘dynamic pricing’ beget cartels?” It might help to read that before plowing ahead here, but in a nutshell, my basic premise was that the ongoing consolidation of online reservation systems is creating an opportunity—already widely common in the apartment rental business—for cartelization, with Campspot best positioned to take advantage.

Campspot has done nothing since then to dispel that possibility—indeed, just the opposite. And that suggests even higher prices lie ahead for RVers and campers.

Cartelization, briefly, means “an act by market participants to form an association to control or attempt to control generation, distribution, sale or prices” of a commodity or service—price fixing, in other words. It’s illegal in the United States, but that doesn’t mean established businesses don’t want it. They just don’t want to be caught at it. So a key understanding here is the realization that “market participants” may include not just primary players—campgrounds and RV parks—but also secondary parties who have some control over prices, with the consent of the primary players, but who don’t take direct payment.

Until recently, the possibility of price-fixing in the highly fragmented campground industry wasn’t a real concern. When I first got into this business, more than a decade ago, the FTC-fearing sages at the National Association of RV Parks and Campgrounds (ARVC) would get all atwitter if campground owners at an ARVC event would start discussing or comparing rates, but that was an absurd overreaction. With upwards of 12,000 campgrounds scattered across the width and breadth of the United States, all but a comparative handful owned by as many individuals, the thought that there could be any meaningful collusion on prices—or anything else—was laughable.

But times have changed. It’s not that the campground industry is now more consolidated—it is, but still not enough for individual campgrounds to coordinate pricing—but that its reservation systems have moved inexorably to online providers. Whereas campgrounds and RV parks until a few years ago each had their own reservation systems, some so primitive they consisted merely of large wall calendars or complicated index-card assemblies, now virtually all use one of a dozen to 15 computerized service providers that enable campers to make reservations online.

As they became entrenched within the industry, such reservation systems promoted several pricing innovations that eventually overwhelmed resistance from campground owners who didn’t want to antagonize their customers. Cancellation fees, site-lock fees and larger up-front deposits have all become standard, but even more pernicious has been the spread of dynamic pricing, which eliminated the old rate sheets in favor of algorithmically-driven rates that vary according to supply and demand. One result is that even campground owners don’t know what their campers are paying at any one time—but they do know that their bottom lines have gotten fatter, so they’re only too happy to play along.

It’s important to understand that none of this amounts to price-fixing in a traditional sense, and indeed, an argument can be made that it’s almost the opposite. Although a campground owner may set an upper and lower limit for how much his reservation system charges for a site, the actual outlay by any one camper is outside his field of vision, so to speak. Moreover, that campground owner has only a vague idea, at best, of what a competitor 20 miles away is charging for a comparable site, never mind the rate charged by a campground at the other end of the state.

But there is someone who does know all that, and more: the reservation system provider.

Client campgrounds of most reservation system providers number in at least the hundreds, which is a good start but still not enough to efficiently drive prices higher. Campspot is another story. With more than 1,800 private parks in North America comprising approximately 200,000 sites, it has enough aggregated data from numerous unrelated clients to follow in the footsteps of a Texas-based company named RealPage and its proprietary algorithm, YieldStar, which has significantly increased apartment rental rates across the country . As detailed in an exhaustively researched ProPublica article, YieldStar  “suggests” optimum rates for thousands of open rental units each day—rates that often are significantly higher than the market rate, and frequently higher than experienced property managers believe are obtainable. And guess what? Over time, such “suggestions” have been adopted ever more readily.

That’s not to say that Campspot is doing something similar, but to suggest that its growing dominance increasingly puts it in a position to do so. And given the inexorable logic of market dynamics in a consolidating industry (meaning both RV parks and campgrounds and online reservation systems), some such outcome seems highly likely.

In that regard, two recent developments suggest that Campspot’s drive toward overwhelming its putative competitors is gathering steam. The first is its announcement Feb. 14 of “Campspot Accelerator,” unabashedly described as a “new revenue-driving feature” for campgrounds. Basically an advertising platform grafted onto the reservation interface, Accelerator “placements” are “intentionally selective and thoughtfully designed to create the most value for the consumer while maximizing the potential for the campground.” Translation: campers reserving sites through Campspot will be enticed to spend extra money, with a portion of the proceeds going to the campground.

Thus far, Campspot is offering two such “accelerators.” One is a partnership with RVshare, which connects RV owners and campers looking to rent an RV—which, okay. But the truly innovative offering is Sensible Weather, which is selling an insurance-like product that “reimburses a camper’s reservation costs when rain impacts their experience.” Claiming that weather “is the most stressful part of planning a camping trip,” Accelerator now offers to make the insurance available for purchase when booking “to help increase camper confidence and enhance the overall experience.”

This adds a whole new dimension to what reservation systems offer, and until other providers catch up, promises to give Campspot even more of a competitive edge in building its client base—and why wouldn’t an RV park owner jump at the chance? But Campspot isn’t just broadening its sales appeal by adding new revenue generators to its menu. It’s also getting a promotional assist from . . . wait for it . . . ARVC, the same organization that once upon a time got panicky when members asked each other about their rates.

Two days after Campspot made its Accelerator announcement, ARVC sent out a membership email blast with the subject line, “Save Time With Campspot.” The actual message, featuring a prominent ARVC logo over a Campspot picture of a happy couple looking at a laptop screen, started with: “Campground owners and operators love the time-saving, stress-reducing features of Campspot. In fact, you might even catch Campspot owners doing a little happy dance in front of their computers from time to time.”

Ugh.

The email goes on to tout Campspot’s grid optimization, provides a link for requesting a demo, and quotes a happy customer. It doesn’t mention any other reservation system provider, even though most, like Campspot, are Supplier Council Members of ARVC—and most provide similar grid optimization features. And it never acknowledges that this email was a paid advertisement, which most assuredly it must have been, because why else would it have gone out?

The bottom line is that Campspot is moving quite aggressively toward monopolizing the campground reservation business, raising the specter of still higher rates for RVers down the road. This move is being greeted with the ready compliance of campground owners who see nothing but more profit for themselves. And it’s happening with the ironic cooperation of ARVC, which apparently has pivoted 180 degrees from its once-overblown anxieties about price fixing.

Who would have thought that a backwoods industry like this would end up on the cutting edge of money-extraction practices?

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Can ‘dynamic pricing’ beget cartels?

How long will it be before reservation software companies serving the campground industry take a lesson from apartment leasing agents and adopt a killer algorithm that will send your site-rates soaring?

One of the biggest mysteries in the RV park business, for campground operators and campers alike, is how rates are determined. How much “should” be charged for a water-and-electric RV site? Should a back-in cost less than a pull-through? How much more should be tacked on for a sewer connection? Fuzzy questions all, frequently answered by seat-of-the-pants calculations. But here’s the most difficult one of all: how often, and by how much, should rates be increased?

Historically, the simplest answer to that last question was to increase all rates each season by a similar percentage, explaining to campers that this was the price of “the increased costs of doing business.” Another approach was for campground operators to see what other parks in the area were charging and make corresponding changes, this time explaining to campers that the adjustment was to keep in line with “the market rate.” But that’s old school.

These days a rate sheet is as outdated as paper itself. These days it’s all about “dynamic pricing,” an algorithm-driven way of setting rates that fluctuate with demand–an apparently hands-free approach that absolves campground operators from any responsibility for camper resentment over higher prices. Indeed, with dynamic pricing, higher rates are the fault of the campers themselves. Who, after all, can argue with the iron logic of supply and demand?

Dynamic pricing, however, is just the first drop in the bucket. Algorithms are capable of doing so much more, especially in an industry that has almost entirely computerized its reservation systems–and in the process opened its gates to a potential trojan horse for even higher rates.

What the future might hold is heralded by an astonishing piece of reporting by ProPublica,  an independent, non-profit newsroom that produces investigative journalism in the public interest. A lengthy article by Heather Vogell, published Oct. 15 and headlined “Rent Going Up? One Company’s Algorithm Could Be Why,” establishes that a significant factor behind soaring apartment rents nationwide is a Texas-based company named RealPage and its proprietary algorithm, YieldStar.

Using data acquired from RealPage’s clients, which include some of the largest property managers in the country, YieldStar “suggests” optimum rates for thousands of open rental units each day–rates that often are significantly higher than the market rate, and frequently higher than experienced property managers believe are obtainable. As a former prosecutor in the Justice Department’s antitrust division told Vogell, “machines quickly learn the only way to win is to push prices above competitive levels.”

In addition to having a comprehensive grasp of what rental rates a major segment of the apartment market is charging, RealPage’s algorithm also calculates how demand for apartments responds to price changes–what’s known as price elasticity. As a result, it can call for disrupting the balance of supply and demand by “suggesting” a supply reduction while increasing rates. Property companies soon learn that they can make more profit by operating at a lower occupancy level–levels that “would have made management uncomfortable before,” as a former RealPage executive explained to Vogell.

While leasing agents would typically lower rents to fill vacancies, YieldStar architect Jeffrey Roper lamented that such practices simply undercut the rental industry. “If you have idiots undervaluing, it costs the whole system,” he said. “We said there’s too much empathy going on here. This is one of the reasons we wanted to get pricing off-site” by taking it out of a property manager’s hands and assigning it to an algorithm.

As a result, Vogell’s article notes, YieldStar’s “design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law.”

What’s intriguing about the YieldStar algorithm is that it seemingly does an end-run around anti-trust considerations, which come into play when industry competitors collude on prices. OPEC is the poster-child example, with major oil producers meeting to set production quotas and pricing targets. RealPage, however, is a third party–its competitors are not apartment mangers but other software providers. And YieldStar does not set rental rates, it simply suggests rates that leasing agents are free to accept or ignore–all of which complicates antitrust considerations and may explain why RealPage has gone unchallenged by the Federal Trade Commission or the Justice Department.

Given all that, it’s not a stretch to think that something similar could be coming to the historically tech-resistant RV park and campground industry. Not only have reservation systems achieved near-universal computerization, but the fierce competition among reservation software companies is rapidly winnowing the ranks.

CampSpot already has carved out a dominant niche, claiming it serves more than 1,800 private parks in North America (there are approximately 12,000 private campgrounds in the U.S.) comprising approximately 200,000 sites. CampLife, Astra, Digital Rez and a dozen others are baying at its heels, all holding out the promise of increasing revenues for their lucky clients. But what many people don’t realize is that all those companies are aggregating the data they receive from their numerous unrelated clients, creating massive data bases that can be useful in all sorts of ways–including the way RealPage has developed.

Reservation software companies were the primary proponents of dynamic pricing, eventually overcoming the entrenched opposition of campground owners who worried about the effect it would have on long-time customers and repeat business. These days, however, such notions of business-to-customer loyalty seem almost laughably quaint, and all the more so with the industry’s increased corporatization. With that “empathy” hurdle now overcome, further monetization of reservation data will face increasingly less resistance.

Don’t be surprised, in other words, if at some time in the murky future the rates at your favorite campground start increasing more than they already have. The invisible hand of the marketplace has a few more tricks up its invisible sleeve.

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