Slashdot Mirror
Dynamic Pricing Returns
TwP writes: "That new computer will cost you $1,200 - wait no $1,300 - better make that $1,500 dollars! IBM, Compaq, and Dell are experimenting with "dynamic pricing" according to this article over at InfoWorld. Amazon tried a similar idea last summer and met with quite the negative response. Hope the computer makers can spin this idea in a better light." Amazon's experience didn't work out, and as far as I know, they've ceased doing it.
Look at auto sales, you get a different price for the exact same product from different dealers! GM's Saturn division is using this practice as a way to entice customers who don't want to deal with this.
[ Full disclosure: I work for a company that writes software to support "dynamic pricing" on web sites. ]
Amazon's dynamic pricing failed, IMHO, becuase it turned the book/cd/etc buying experience into something akin to buying a car. The price you pay depends on which saleman you talk to or how successful you were in negotiating a better price. All in all, an experience that makes you feels as though you were ripped off or that there was a better price but that your bargaining skills were inadequate and no one likes that experience. Don't the airlines use something like dynamic pricing? I don't know of anyone who feels like they got the best possible or even a fair price on their airline tickets.
Just wait until Compaq and IBM owners start comparing notes and find out that they bought the same computers but at wildly difference prices. I wouldn't count on a consumer buying another computer from a vendor that adopts this pricing scheme.
--
CUR ALLOC 20195.....5804M
What Dell is doing is essentially turning their corporate desktops into loss-leaders (well maybe they arent' actually losing money, but close) for thier server division.
I've worked at many places that have standardized on Dell desktops and Compaq servers. Word has it that apparently Dell isn't so generous with their volume discounts unless there's a commitment to switch to their servers. They are also handing out lots of freebie servers.
Dell knows that the server machines are higher profit. What they apparently don't understand is that its the same commodity parts situation as the desktops. The net result of all of this is that x86 servers will be sold at similar lame profit margins as the desktops.
While it's tough to complain about a price war and cheap hardware, there's the real risk that your favorite vendor will self-destruct.
In the past, Compaq (for example) has done a lot of custom engineering work to get Windows NT to run stably on their hardware. In the distant past they used to do the same things with their desktops. Now Compaq desktops are crap -- how long will it take for the servers to get there? If Dell/Compaq start pushing commodity servers with standard Intel boards and standard Phoenix BIOSes and bolt on cooling, it may serously damage the x86 server business' (and OSes such as W2K and Linux) ability to move up scale.
Then again, maybe this is all preperation for the upcoming "encouraged" Itaninum upgrade. At least Compaq bought a midrange business that they can fall back on.
--
Business. Numbers. Money. People. Computer World.
It's one thing to vary the price with availability, demand and the cost of components. To feed in discounts as the order expands to encompass more items or extras.
Thai is quite different from Amazon. They were essentially using past-purchase information and website activity to determine your ability to pay more (IOW how rich you were) and boosting the price on you based on that.
If the price of RAM goes up, I expect to pay more. If it drops later, I'll groan when my friend gets the exact same machine for less. But that's the way in the industry. OTOH, if I save up and buy an expensive book, I don't want all subsequent purchases to be charged at an inflated price, because I've now proved I can afford it!
What would be good from the customer perspective is if websites actually provided some pricing rationale and history. You could click on an item's price and see that yes, it is $100 more expensive today than yesterday, but that's because the price of RAM has just gone up, say.
Otherwise, pricing is just a black box and customers have no way of knowing if they're being discriminated against.
Of course, there are tools to help customers compare prices across web sites, so in an absolute sense, it's not a problem. But vendors would be wise to consider the impression that these things leave on customers. If I want a Thinkpad specifically, I can't go to anyone but IBM or an IBM dealer to get it. If I suspect IBM is playing funky games with pricing, I may decide I'm better off with someone else.
In short, transparency is a good thing, in pricing as in many other areas.
Actually, I just went and tried this using several zipcodes, and couldn't see any changes in pricing. They claim to use it to display inventory differences in the local areas. As far as I can tell, that looks to be true. Anyone got an example they can point out to prove prices change on staples.com?
---
- Give a man a fire and he's warm for a day, but set him on fire and he's warm for the rest of his life.
Oh, they certainly do. You're just hanging out with the wrong crowd. :-) More seriously, things
got to the point where nobody had a problem with
flights getting more expensive the closer you got
to the flight time, and everybody understood the
necessity of matching a competitor's low price
for a particular route.
But the latter point still leads to some really screwy things. We live in Columbia, MO, which is half-way between KC and St. Louis. When pricing a flight back to Boston recently, we found out that the KC-Boston routes were cheaper. Fair enough, demand might be lower or competition more severe. But many of the KC-Boston flights were actually KC-St. Louis-Boston, and you were paying almost $200 less to take the whole route compared to the St. Louis-Boston chunk. Intellectually, I know why that happened, but that didn't make me feel happy about it.
Now, the real fun came the evening when my wife and I were tag-teaming the travel agency websites from our two computers. At one point, we realized that the more we looked at fares, the higher they seemed to be getting. It got really tempting to believe that we were the culprits by making so many queries...somebody's code decides that X/100 of all queries become sales, so when Y queries come in, you raise the price for query Y+1. This could get really ugly.
Me, too. But the most surprising lack of dynamic pricing is for (in-season) ticket sales for sports teams. Why on earth should a ticket to see the Hated Yankees cost the same as a ticket to see the Tigers?
Babar
I mean, why charge ANYONE a lower price?
Because more people will buy at a lower price than a higher price. You'd really like to fill the entire space under the price-demand curve, rather than the rectangle delimited by a single price point. That's why hardcover books sell at a premium, and that's why hardcover books come out before the paperback version. What you're *really* paying for is the earlyness, not the hard cover. It's called "price differentiation".
In a competitive market, it serves to lower prices for everyone. Yes, even the people who pay the higher prices.
Economics is fun! You can learn more about this kind of thing from David Friedman's _Hidden Order_.
-russ
Don't piss off The Angry Economist
Quaker merchants pioneered the idea of a single price for all buyers. Prior to that, only a competent negotiator could get a good price on something. So you couldn't send a child to buy something at the corner store.
So in time, people sought out Quaker merchants, because they knew they would get a fair deal.
-russ
Don't piss off The Angry Economist
I mean, why charge ANYONE a lower price? They should just sell all their computers to everyone at the highest price they're willing to sell at.
No, this is not a troll.
These are businesses that survive on profit margins... and who sell to a lot of middle-class individuals and corporations. If they just keep the prices at the highest level, people are gonna buy from these companies ANYWAY... people are not knowledgeable enough about computers, and it's too much of an inconvenience, for people to be able to tell when they're paying a bit more than they should. While this sounds kind of slimy from a consumer point of view, computers are rather useful machines, and I always thought that the benefits of a factory-made computer justified the higher prices.
This won't affect hobbyists. They never buy from these companies anyway. And it doesn't affect poor people, either... they can't afford such a computer anyway (I know, that's not the way things should be, but let's face it, poor people should be getting a PeoplePC or an eMachine or something like that... and that's only if they're able to eat first. Otherwise, a computer is a convenient luxury... like an in-house washer and dryer set).
Maybe if these companies set higher prices, and they prove people are willing to buy at those higher prices, the computer manufacturers don't have to keep dipping prices below profit levels, and you won't see the carnage that existed in the industry over the past few years. Yea, it's not the best short term solution for the consumer, but it's better long-term for the consumer and the industry. Besides, it's a wise investment for any consumer, and perhaps people will be more inclined to price shop and become knowledgeable about the machines themselves if they have to think about the price more... getting a whole computer for $300 after the MSN rebate doesn't require a whole lot of thinking for most people, after all...
There is a difference between what these computer manufactorers are doing and what Amazon did.
IBM will adjust its pricing "in real time based on metrics such as customer demand and product life cycle." They are using the same parameters to determine price as brick & mortar stores. The only difference is that it is done in "real time".
Amazon's scheme used a differenct set of parameters: which browser was being used, whether a consumer was a repeat or first-time customer and which Internet service provider address a customer was using. All of this was done without informing the customer. It would the equivelent as going into a store and getting a different price quote depending on the color of your shirt, your height and weight, etc.
The customer's experience will be different. Under Amazon's implementation, a customer would get one price will surfing at work, get a second price when he goes to place the order at home, and gets the first price again when he double checks it later at work again.
Under this implemtation, the changes in pricing would tend to follow a trend. Check at work and get one price. Order at home and get a higher (or lower) price. If the customer double checks the price again at work, he will either get the same price as the price he ordered it at home, or it will follow the trend of going higher (or lower) as the last time.
I don't see the customer's having the same reaction to this scheme as amazons as long as the web sites explain the factors that will effect the price and give the customer of getting a firm, fixed price quote.
I feel like picking a fight with everyone who thinks they are right. - Rainmakers
My brother's the same way. He habitually offers 50% to 75% of the asking price, even at large chain stores. And often gets at least some discount. He is 6'4", muscled, and and be somewhat menacing, tho...
- - - - -
Napster-to-go says "Fill and refill your compatible MP3 player", which is a lie. It's not MP3. It's WMA with DRM.
So while you might get annoyed, they still have your cash. You get hot and bothered, annoyed.. so you need another Coke. Well come to capitalism.
An Eye for an Eye will make the whole world blind - Gandhi
this is just another reason why it's better to build you own servers.
E.
-
-
This Post has been brought to you by the letter "E".
I run a computer parts store. When the price that I have to pay for things such as RAM and Processors goes up, I up my price...when they go down, I lower it. My price sheet changes every day, as does my website. I really don't see the problem with this from an economic standpoint. They are making all the money they can. As a consumer, if you are willing to pay that price for the server, then you will.
OTOH, if there isn't a great demand for the product you want, they this will help you get it cheaper. When less people want to buy it the price will automatically go down! It's just all in how you look at it!
------ This has been provided as a public service! ------
When Amazon did it they gave different prices to different people based on thier individual actions within the site based on cookies. This new system for changing the price of computer equipment is based on inventory and many other factors that arn't really related to the user's actions. To me this seems much more fair that what Amazon did.\ =\=\=\
=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=
--
-- @rjamestaylor on Ello
Wrong. It starts snowing, so 5 different stores all raise the price of snow shovels. Or there's a hurricaine coming so plywood prices mysteriously shoot up...
Even if not all the stores raise the price, they know you're desperate and aren't going to be comparison shopping. I believe economists refer to this as 'got you by the short and curlies.'
Ok my karma is maxed out. When do I become Enlightened?
This is so bad IMO.
Anyone ever been to public parks.
Its the heat of the summer and your drenched in sweat desperately seeking a bottled water or coke machine because you forgot your drink.
You spot a coke machine and a bottle of coke (20oz of liquid) costs 3.75?!!?!?
Yes they call it "contextual pricing" just like from the article right? *cough*
Yet in the winter that coke costs oh say a mere 75 cents.
What gives?
The coke machines have thermometers in them and they jack the price up as the temperature increases / decreases.
How lovely.
When you are talking thousands of dollars this just is NOT going to work out. The backlash would be even more severe! Were no talking 5-10 bucks were talking 100-500 bucks here! Owch.
Id be annoyed enough about something like that.
Jeremy
"The IBM project, developed using software from @themoment in San Mateo, Calif., will allow Big Blue to automatically adjust pricing on its server line in real time based on metrics such as customer demand and product life cycle. As a result, customers will find that pricing will dynamically change when they visit IBM's Web site on any given day."
OK. So their going to try to apply real-time pricing based on perceived supply/demand. This seems to work best when there is only one clearinghouse where things are bought and sold, such as a stock market. In a stock market situation, everyone comes to ONE place to buy and sell. Prices are then set as trading occurs.
But in this situation, there are MANY, MANY places to buy computers. You can buy them from established sellers, from mom and pop places or assemble them yourself from parts. Futhermore, a large buyer is going to want a locked-in contract price - and is going to be able to better negociate a lower price. A smaller buyer will collect quotes from a number of sources and make an informed decision based on price/performance. Again, that smaller buyer will have a written quote. Most quotes have established time frames (ie 15 or 30 days). If IBM thinks that they'll win customers by suddenly raising their prices after 3 days, they're living in a dream world. Competition is such that MANY clearinghouses exist for computers and the buyer will just go elseswhere. Compounding this will be their OWN sales force. These people make money off commissions of products that they SELL. If there is a fine line between a sale or a customer walking away, the sales force will undermine the pricing system to make the sale.
Home users will shop for bargains just as they always do.
Given the razor-thin margins on hardware these days, I can't see great shifts in price for computer systems occurring on a daily basis. Sure a few dollars for a system can mean millions in the larger scheme of things, but screwing around neednessly with customers in a competitive sales environment is asking for trouble.
I can just picture people clicking reload a hundred times on Dell's website trying to get a lower price for their new laptop.
IMHO, this isn't a bad thing. Prices on computer components generally (but not always) tend to fall. This just means that your system supplier isn't overcharging for parts because they haven't updated the price to reflect the new wholesale cost yet.
IIRC, the furor over Amazon's dynamic pricing scheme was mostly because Amazon wanted to offer different customers different prices for the same item.
This is EXACTLY the same as offering discounts to students and seniors at restaurants and movie theaters (or alternatively, charging more to people who are NOT students or seniors). It's the same as computer companies selling their wares at university campuses for substantial discounts if you can produce a student card. It's the same as stores in tourist districts that give discounts if you are a local customer. Few would argue that these discounts are unfair or predatory. But it is important to note that in these cases, students/seniors/locals are NOT being charged lower prices out of the goodness of the hearts of the companies, they are being charged lower prices as a result of price discrimination, and the motivations are purely profit-oriented. And that is how things should be.
The issue here is not that dynamic pricing is good or bad, but, how to implement it in markets where it has not previously been used.
The idea here is for companies to be able to sell to customers they would not otherwise have rached, by selling their product at a price the customer is willing to pay. For example, Dell sells a particular model of computer at $1500. At that price they may have 20,000 customers. Now, how about the next customer? There has cot to be a customer willing to buy the computer if only it was sold for $1,499. How many customers who would not otherwise have bought this model of computer, are now buying at the new price? This might bring in another 150 customers. Now, would it have been cost effective for dell to sell all 20,150 computers at $1,499? No They would have been losing almost a quarter of a million dollars in potential revenue ($244,850 to be exact). You can not reasonably expect a company to willfully choose to forego that revenue, and in order to generate that revenue when selling at the lower price, they would have to sell to another 163 customers - where in our example there are only 150 customers who will buy at the $14,99 price. In fact, that quarter of a million dollars in projected revenue might be the deciding factor in weather or not to produce this model of computer. This is an example of marginal revenue - which would have been simplified with graphs, but ayway...)
Now, lets look as the consumer/social value in this proposition. 150 users who would not have bought a Dell computer (of a certain quality) now have done so, thus enhancing their lives (to whatever degree having a Dell computer enhances your life).
I realize the numbers in the above example are way off, but it serves to demonstrate my point about marginal revenue. If the company could not make a predetermined percentage of proffit from the sale of this model of computer, they simply would not bother to sell it. This would negatively impact 20,150 consumers who would not have the opportunity to buy this Dell computer.
Marginal pricing and marginal revenue have been counted on for years in numerous industries, for example, when pricing gasoline. Oil companies charge different prices to gas stations in different parts of the country, and even different parts of a city. YOu can go to a bad neiborhood and get gas more cheeply than if you go to the good neiborhood. Interestingly, the net proffit made on the sale, by the independant gas station owners in this case might actually be exactly the same. Oil companies use a complex dynamic pricing model to determine the price at which gas is sold to various different gas stations. This has been the case for 50 years.It's only when dynamic pricing becomes visible to consumers on a one to one basis, are there any objections.
Not to put too fine a point on it, but we have been conditioned to believe that we have the right to be charged the same price as the next guy, for goods and services that we buy. This is simply not the case.
--CTH
--
--Got Lists? | Top 95 Star Wars Line
My other half has a great way of buying things at Junk Sales... When she sees somthing she wants, the conversation goes somthing like:
Wife: How Much?
Seller: £20
Wife: I'll give U £15
Seller: Ok, no probs
Wife: £12 it is then.
Seller: Ermm, Hang on,
She then gives them a tenner and takes away the goods, She usually gets away with it for the cheek!
I Wonder if this can be applied to Dynamic pricing.... They Say a PC's $1000, and you get it for somewhat less if you offer.
except when it's in retail sales. The price of 1,000,000 chips will vary from day to day. It also varies with the size of the order and with the seller's previous experience with the buyer. Dell and IBM are dealing with variable prices everyday with the stuff they buy. There was a time when every retail sale was negotiated -- if you wanted to buy one potato, you'd have to pick one out and argue with the grocer about the price. Some people enjoyed haggling, some hate it, but in any case you can waste a lot of time that way -- and if the grocer stands there negotiating with you for 10 minutes, he's going to have to make up the lost work time in higher prices somehow... So in the USA for a century or so retail sales have mostly been fixed price, except for items like cars and houses where there's enough money at stake to be worth it.
But computers make it easier to move back to a system where the price not only changes every few hours, but also depends on the seller's impression of the buyer, or some substitute for that. For instance, in buying an airline ticket you'll see a wide variety of prices for the same service -- the point being that if you are desperate to find _some_ flight going the right way at the right time, or are so rich that hunting through the mess isn't worth your time, the airline can get $1,000 out of you, while if you can go anytime and you put enough effort into looking up prices, you might spend $400 for the same seat.
But dynamic pricing does bother Americans, and I think it is worse when it's done by computer, since you can't haggle with it. In the old days, the ultimate argument was like "You only charged Mary Beth 3 cents for a potato this morning", and you'd either get a 3 cent potato or some (possibly valid) reason for the increase: "Her potato was smaller", or "I wasn't running out of potatoes this morning." But Amazon's computer would charge you a different price than it charged your friends, with no explanation and no one to listen to your complaints. That you could log in twice and get wildly different prices yourself just made it worse.
IBM and Dell are doing just partly dynamic pricing: changing the price as often as the price of parts or the load on their assembly line changes, but charging everyone ordering the same system at the same time the same price. It can get people a little confused, but it's not like Amazon's system. There is one thing that is crucial to keeping customers happy when you change prices frequently -- you give them a firm quotation that is good for a certain time period. If you look at Dell and the computer you want is $1,095 now, then go to other vendors to check prices, and when you come back to Dell it's now $1,195, you are quite likely to prefer the guys that have been quoting $1,200 all along. So what Dell should do is to give you a way to lock in the first price for a few days if their prices go up. I don't know if they are doing that or not -- but they'll lose customers if they don't.
What it is called is yield management. It works quite well. Based on the idea that if you have a finite inventory (this case a voyage or trip with xyz amount of space), you should be able to pre-sell most of it early, what is required to sell the space is small adjustments in the price.
The problems/joy comes when inventory approaches the extremes (very few seats, very open seating, or few days left before take off). The pricing model will adjust the prices so rapidly that 2 consumers can have 2 different prices and the difference could be huge percentages, 10 ? 40% in some cases and the tickets were purchased minutes apart.
For that reason, people should never book flights with less than 2 weeks or greater than 8 weeks from takeoff, unless they know that the flights will be booked out. Example is spring break, you can book that flight in December and pay less than if you booked in January. Same thing for USA to Europe, in June and July book 6 weeks in advance. For Hong Kong out of NYC, Cheapest flights are in September, October, & November and you can wait until the last 3 weeks to arrange it.
ONEPOINT
if you see me, smile and say hello.
You can rest assurred that if i buy a computer from Dell that the price goes down later THAT SAME DAY that i'm going to be pist and that i'm going to want the difference back. And that's bound to happen to a lot of people since the price is determined by what the in-stock and demand is like. Variables that are both being changed by my having made my purchase. Yes, i realize that both those variables will tend to push the price upwards, but then that's bound to piss someone off who saw a cheaper price earlier and then when he went to buy it was more expensive.
I think this is a pretty retarded idea, and i can't see how anyone like the marketing people at dell, and IBM that have marketing degrees or MBAs, and are supposedly smart people would think this is a good idea.
Really, this is nothing new. The retail term for what we're talking about is "Zone-Based Pricing." It's the same thing as when I go to McDonald's in Boston and pay $4.35 for the double cheeseburger combo, and in Nebraska I pay $3.25. It's just that there is a cost-of-living difference that retail chains will definately take advantage of.
Case in point, Staples.com. Nobody mentions it much, but Staples has zone-based pricing, not only in the stores, but now it has been implemented on their website. Didn't you ever wonder why they ask you for your zip code before you can browse their selections? It's because they will charge you different prices based upon your living area.
capitalism, capitalism.