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The Almighty Buck

Dynamic Pricing Returns 243

Posted by michael
from the redlining-internet-style dept.
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.
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Dynamic Pricing Returns

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  • by Anonymous Coward
    Is it just me, or has EBay driven the entire world into a "just a few dollars more" type of mindset? I've always shied away from places where prices weren't stable, because even if I end up paying a small premium, I know I'm not going to end up with the "but Bob just bought it from them for half that" blues.

    Of course, it is somewhat irrelevant, since I'm not going to to be buying a prefab system anytime soon, but it will definitely make my job harder when it comes to giving recommendations to friends... "Yeah, a Dell's pretty good, but I'd wait until the Fed cuts the prime rate at their meeting next week, unless you think Compaq is going to post a strong earnings report Friday, which would drive the prices up for individuals who buy on Mondays and Tuesdays, which would make it cheaper to buy from a library terminal on Thursday."
  • by Anonymous Coward
    15 U.S.C. Section 13 - Discrimination in price, services, or facilities

    (a) Price; selection of customers. It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered: Provided, however, That the Federal Trade Commission may, after due investigation and hearing to all interested parties, fix and establish quantity limits, and revise the same as it finds necessary, as to particular commodities or classes of commodities, where it finds that available purchasers in greater quantities are so few as to render differentials on account thereof unjustly discriminatory or promotive of monopoly in any line of commerce; and the foregoing shall then not be construed to permit differentials based on differences in quantities greater than those so fixed and established: And provided further, That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade: And provided further, That nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.

  • by Joseph Vigneau (514) on Friday May 18, 2001 @05:17AM (#213968)
    So, protest with your dollars. Capitalism is a beautiful thing. You always have the option of taking your money somewhere else. If they can squeeze more cash out of you because you're unwilling to do your own due dilligence, then too bad. If they want to charge you $500 more than some other vendor because you told them (or they somehow figured out) that you make more than $75k a year, go somewhere else. If enough customers balk at the practice of dynamic pricing, IBM/Compaq/Dell will end up losing money, so it will make more financial sense not to do 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. ]

  • There's a nice site here in the UK that kinda of lets you do this - computerprices.co.uk.

    Say you wanted a 1Ghz T'bird [computerprices.co.uk] - they show you the comparison shopping prices for a few retailers and (scroll down a bit) the price history for that product, based on the best price each week. For this particular product, you'll see the price has come way down since launch (as expect).

    Looking at RAM prices [computerprices.co.uk], you'll see they fluctuate a bit more.

    I thought they also had a feature that would email me when a particular product got below a price you had entered, but I can't find that now.

    ...j
  • People would kick the hell out of those machines.

    They already rough up machines without something like this. Somewhere I read that 2 people are killed in the US each year by vending machines falling on them.
  • "It's hard to see the benefit to the customer," Andren said.

    That's because there ain't no benefit to the customer. It ain't nothing but a java driven shell game. I know a bunch of people who are put off from online shopping. This will slow acceptance further. I ain't shoppin' there. Where I come from people who do this are described as crooked. I hope they had the same experience Amazon did.

  • I would think the price would go up rather than down the more you clicked it. "Hey, this guy is REALLY interested in this laptop. Let's raise the price for him $50 and if he comes back to view the page again a few times raise it some more since he's really hot for it." Now THAT is evil.
  • The amish are another anabaptist group. About 5 miles down the road s an amish store near several farms. On the repackaged bulk goods, the price is consistently *exactly* twice as much for a package twice as large . . .



    hawk

  • There was a big fuss about them a bit over a year ago, abut as I recall, there was no plan to implement them in the near futere.


    Also, reaction to them varies: Is it charging more on a hot day, or is it offering steep discounts on cold days? People tend to oppose the former and support the latter, even though they're the same thing.


    hawk, economist

  • Russia did *not* switch to capitalism or free markets (kudos to Mr. Slippery above for being one of the rare folks to recognize the difference).


    Under a capitalist system, ownders of the capital receive the proceeds. This just isn't the case there--the managers of the firms get the proceeds, and currently the shareholders have absolutely no way to force them out. Additionally, the state is massively involved to favor its own industries (Just look at the current takeover of the media).


    Russia is currently a mix of industrial feudalism and fascism. The markets are not free, and the owners of capital are not entitled to the proceeds.


    hawk, econ professor

  • A friend of mine (a gem dealler) will probably try to haggle before the Throne on Judgement Day . . .


    the man once got the price down on a bucket of chicken at Col. Sanders . . .


    hawk

  • > Quakers aren't anabaptist.


    they're not? I thought they had some kind of past connection to the Mennonites. Then again, my knowledge of Protestant theology tends to the mainstream and baptist . . .


    hawk

  • The theoretical problem is that Fairness is seen from the buyers perspective however rationel the pricing looks to the seller. Humans have an inate sense of fairness. As social beings we have been selected for that as a mean to better survive in a group setting. Dynamic pricing goes against this fairness sense and we consequently finds this appaling. Professor Rabin [macfound.org] recently won the MacArthur price (same as Stallman won earlier) for incorporating this Fairness sense into modern economic theory.
  • by rnturn (11092) on Friday May 18, 2001 @06:22AM (#213991)

    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.


    --

  • Actually what's going is that there's a PC price war brewing.

    Now normally (unlike our friend the clone builder), Dell has to build in a percentage markup that represents the risk factor of RAM going up or hard drive shortage. Essentially an insurance policy against commodity fluctuations. When RAM prices stay the same and the hard drives come in, Dell pockets that money.

    Their margins are already so thin that this insurance is about the last thing left they can cut into. So, they're moving the burden of the commodity risk onto the consumer, and essentially doing what Animgif does with a daily price sheet. Sound great because it will lower prices? Wait until you put in an order for $X and the invoice comes saying $X+Y. That's not so much transparent as it is changing the traditional roles of seller and customer in the big PC market.

    In short, transparency is a good thing, in pricing as in many other areas.

    In my personal view, price wars and this sort of desperate "transparency" indicate the the commodity PC industry is on it's way out due to nearly invisible, or shall we say transparent, margins. Expect the big guys to retrench to corporate markets or very dedicated [read, locked-in] customers. As Lou Gerstner said in a recent Register article: "Starting a price war when you don't control the product is stupid" (paraphrased). Unfortunately, many small vendors are going to get squeezed in the middle.

    --
  • by IntlHarvester (11985) on Friday May 18, 2001 @07:07AM (#213993) Journal
    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.
    --
  • ...and the local gas station raises prices _the next day_ citing OPEC as the cause of new shortages. You know for a fact that the gas in the holding tanks was purchased at pre- OPEC-induced shortage prices, as was just about everything at the refinery and most any of the oil already currently in the United States. Yet somehow an action taken at a meeting in Vienna for a product that travels on a boat for 45 days before it reaches the US is instantly felt on main street? C'mon!

    The same thing is true of computer parts. In spite of JIT no-inventory management systems, most of the components Dell et al buys were bought on contract for a fixed price/unit from Intel and others. Adjusting the price to account for the cost of what components cost NOW rather than what was paid for them WEEKS AGO doesn't make any sense AT ALL.

    And I have seen WITH MY OWN TWO EYES Dell do dyamnic pricing ala Amazon. A 2450 rackmount was nearly $1000 more expensive Monday morning when I logged in with our corporate account than it was Sunday night as a random web user. I immediately saw that I was getting raped for being a "corporate" customer.

    All of these schemes are nothing more than excuses for charging the MAXIMUM amount of money, they have no basis in supply-demand.
  • That is called price-fixing, and many if not all companies do adjust based on competitors' pricing. Just now that factor will introduced real-time. Take the example of petrol prices, most are changed when the other nearby ones have changed their prices. Exactly what in the UK, Esso (Exxon) pledge in their adverts "Pricewatch".
  • by Sly Mongoose (15286) on Friday May 18, 2001 @06:08AM (#213996) Homepage
    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!
  • by alienmole (15522) on Friday May 18, 2001 @06:13AM (#214000)
    You're right, this is normal. However, in the offline world, it's not uncommon for a salesman to tell you that a price is about to or has just gone up or down. On the web, it's very unusual to see any notifications about such things, except in the case of specially discounted items or sales.

    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.

  • by Otto (17870) on Friday May 18, 2001 @08:00AM (#214002) Homepage Journal
    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?

    ---
  • Price discrimination says that if I can learn enough information about you, I can predict what your threshold for pricing is, and thus I can charge the maximum for all customers. This is rather than having to set a price and have some customers pay less when they would have been willing to pay more, and to lose some customers where the price is over the threshold.

    As the previous poster explained, this process maximizes revenue for the seller.

    But in order to perform perfect price discriminiation (which every retailer would love to do), 2 conditions must be met:

    1) The various groups must be clearly identifiable

    2) The groups must have different elasticity of demand (econ talk for their willingness to pay higher prices for an item).

    So the problem for IBM is how to associate what little informaion they can glean from your web habits to associate with your elasticity of demand and to ensure that that information is accurate. Oh, and they have to be able to prevent resale (not too difficult; just void warranties). But since there is no surefire way to identify who is on the purchasing end, and since the internet makes for an almost pure market wih nearly ideal communications, I can only see this backfiring.

  • Technically, you need to be able to distinguish group A (those willing to pay price X) and group B (those willing to pay price X + Y) in order for PD to work. The group can consist of one individual, but often in practice, it's usually a demographic.

    Airline tickets are a standard example in econ for many things and they work here. As an airline, I know that business travellers are capable of paying a lot more than students. But I need to know if that grungy dude paying for a ticket is a student or a (somehow still wealthy) dot-commer.

    So I have to be able to identify his demographic and I can do that based on if he has a student ID (obviously a student), or if he's traveling during the week and not staying over on a Saturday (pretty good chance he's a business person). While it would be nice to know exactly how much his travel expenses would allow, just by being able to group him into a demographic gives me sufficient information to charge him accordingly.

    I imagine that the software to price to the person will actually group them into a pre-defined bucket (this bucket should be priced at X% above the list price, this bucket at Y% below, etc). (Like "Student + State School" might pay a little less than "Student + Private School" but both will pay a lot less than "Business Use + Over 500 Employees").

  • 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".

    Actually, the book question is a bit more complicated than that, albeit in a way that helps prove your point. Libraries also buy hardcover books for reasons that are probably pretty obvious, so part of the hardcover premium is really a "library tax". Then some publishers really cracked wise and started to offer special "archival quality" editions of books with better bindings and completely acid-free paper and the like. And a nice little business this was until somebody figured out how to dematerialize the books completely...but that's another story.

  • by King Babar (19862) on Friday May 18, 2001 @05:58AM (#214008) Homepage
    Airlines have done this extensively for years. The price of a ticket varies tremendously based on how full the flight is. The guy or gal sitting next to you may have paid twice what you did -- or half.

    It is a bit of a different situation, since there's only X seats on a given flight. But still, I'm surprised that people don't find this objectionable.

    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.

    (Though I'm more surprised that TicketMaster hasn't started using this approach for concert tickets...)

    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?

  • Ok 1500-1499=1
    1 * 20,000 = 20,000
    Where did you get 244,850 I really want to know?
  • <i><u>As an airline</u>, I know that business travellers are capable of paying a lot more than students.</i>

    WHOA! your an airline??
  • Ok sorry, I had thought your point was that if they had sold them all at 4,999 then they would have lost X amount of money, Which is actually 20,000. Now the kicker here is how do you know they will pay 5,000 over 4,999 as you could easily misprice a dollar over what they will pay and therefor lose 150 customers ak (224,850-cost) as opposed to getting all your customers at 4,999 and only loosing 20,000. Though I guess that could be benificial if your cost is too high enough, its a balancing act in and of itself
  • Just more evidence that politics and economics are philosophically opposed to each other. In a free market, price discrimination helps to lower prices for everyone, and it's more fair, even though that conclusion is not obvious.

    Take the upper end -- someone who values the item at more than its price. They would happily pay more for it, even though it's the same thing. So effectively, they're getting more value than someone who's buying it at the median price. It would be more fair if the seller received more of the value.

    Take the lower end. That's someone for whom the value of the item is less than the price, so they don't get the produce. If, on the other hand, the seller could discriminate and take a lower profit margin on just those buyers, the low end buyers could enjoy the product.

    Robinson-Patman exists only because of a mistaken concept of "fairness". When you actually look at it, though, it's the law itself which creates the unfairness.
    -russ
  • by Russ Nelson (33911) <slashdot@russnelson.com> on Friday May 18, 2001 @05:13AM (#214018) Homepage
    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
  • by Russ Nelson (33911) <slashdot@russnelson.com> on Friday May 18, 2001 @05:08AM (#214019) Homepage
    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
  • Gee folks, it's the Bazaar model! When you go to the bazaar, there are no fixed prices - the price depends on what you want to pay, and what the vendor wants to sell for

    (I seem to remember a software movement based upon open knowledge, something like this )
  • Wrong. It's called gouging. Soda supply is elastic and is not affected by the weather. So price is based on demand alone - that's gouging.

    My god, you would fail Economics 100 so badly... When demand increases, the price increases. This is a basic fucking principle of microeconomics. It's entirely natural. If you don't like it, buy Pepsi (or drink water).

    The only time this kind of price increase becomes immoral is when the seller has a monopoly. Coke is big, but they have plenty of competition.

    Right now, you're just ignorant. Go read a microeconomics text, then make up your mind as to whether you're capitalist or communist. No informed person who is even slightly capitalist would believe that Coke's temperature-linked price increases are immoral or should be made illegal.
  • Airlines have done this extensively for years. The price of a ticket varies tremendously based on how full the flight is. The guy or gal sitting next to you may have paid twice what you did -- or half.



    It is a bit of a different situation, since there's only X seats on a given flight. But still, I'm surprised that people don't find this objectionable. (Though I'm more surprised that TicketMaster hasn't started using this approach for concert tickets...)

  • Capitalism relies on the worst traits of humans (greed, gluttony, avarice, pride, you know the seven deadly sins) while communism relies on the best aspects (unselfishness, sacrifice, sharing, helping others you know all the things you mom told you you should do).
    Simply put more people are greedy then generous. As Sigmund Freud once said. Communism will never work because people are not good.
  • Great quote a towering intellect like Ronald Reagan to make your point. LOL.
  • Why not walk on over to the neighbor and kill him? He is weak from hunger and can't put up much of a fight. Once he dies there is no more danger to you. As a bonus there is more fish for you. If you are truly selfish the best thing to do would be to eliminate all competition for your food supply so there is no danger of running out.
  • I'll reply to this, the highest modded reply.

    You're right. But consider this: people buying PCs now will pay $1800 for a PC if that's what it's sold for. They will pay $1500 as well, but if they can't find a $1500 computer that they want, they'll pay $1800.

    The PC market recently devoured itself, so I think the big guys can safely price computers a little higher and not worry about losing sales to cheap competitors, most of which have died off in the past two years. It sounds like collusion, but in reality, none of these manufacturers can afford to be loss leaders for much longer - market share and service contracts previously buoyed up these companies' stocks, which made it look like they were all ridiculously successful. Now they're all in the tank, and it's time to charge more for their products. Now that I'm moving on from being a poor college student and going into the real world making real money, $1800 for a solid computer doesn't sound so bad. Except I still know how to build em much cheaper, so more power to me.

    Yea, there's lots of stuff in economics and accounting that would help these companies set their prices right, but let's look at it this way... they've been ignoring economics for years anyway. For all the computations that PCs can do, they still haven't calculated how to make solid profits and generate stable economic figures.

    Just like Yahoo! should now start charging modestly for all the news, e-mail, games, clubs, etc. they provide, since I'd rather pay for them than see them go away... but that's offtopic.
  • by brianvan (42539) on Friday May 18, 2001 @05:04AM (#214030)
    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...
  • Actually, Amazon was doing a random 50/50 assignment of prices to sessions. The browser and customer history had no effect.

    Not according to the article [computerworld.com] in Computerworld. I don't use Amazon so I do not have any firsthand experience. Do you have a link that shows it was 50/50?

    The whole point was to directly measure the demand curve by testing two prices simultaneously, and that requires that the experiment and control groups be as demographically identical as possible.

    Even if they did it by assigning prices to customers on a random basis, it still left a bad taste in the consumer's mouth since it was easily verified that different customers got different prices. When stores try these experiments in the brick and mortar world, they usually do it by geographic locations. Customer's are accustomed to the fact that the same product will be priced differently in different parts of the country.

  • I completely disagree that "supply and demand" are the basis for anything that has happened.

    Then you disagree with a fundemental tenet of economics. "Supply and demand" states that, all other things being equal, there is a direct relationship between the quantity of goods offered for sale and the price of those goods while there is an inverse relationship between the quantity of goods bought and the price of those goods.

    There are several well known excepts to the "supply and demand" curves.

    Snob appeal: The sale of some goods, e.g. perfumes and designer clothes, may drop if the price is dropped. This is because the buyers are buying more then functional clothes. They are buying cachet by owning goods others can't afford. Dropping the price will drop this value.

    Labor: The supply of labor will follow the normal supply curve until it reaches a certain point. At that point, the supply of labor will start to drop as the price increases. This is because the workers start to place a higher value on leisure time as their wealth increases.

    The money supply is tinkered with frequently ,. . .Supply is frequently altered through subsidies and tax breaks. . .Prices are often highly regulated for many of the most serious needs. . .Finally, the government assists and prohibits businesses rather often.

    These fall in the "all other things being equal" category. In fact, some of them demonstrate the validity of the supply and demand curve becaue they are using "supply and demand" to obtain the desired effect.

    Federal Reserve lowering interest rates: Credit is a "product". Increase the cost of borrowing money, and less people will borrow. Decrease the cost and more people will borrow.

    Tax breaks and subsidies: This is an attempt to increase the supply by decreasing the cost of the item.

    I agree that "supply and demand" is not the total story. However, I disagree that it has nothing to do with "reality".

    please don't let reality get in the way of your ideology.

    Ideology has nothing to do with it. Even Kensians agree that "supply and demand" exist.

  • If you're going to quote evidence, quote something relevant.

    From the article:

    On Sunday, online shoppers logged on to the DVD Talk Forum, a chat room dedicated to discussions about DVDs, and noted that Amazon's price for a limited-edition copy of the Men in Black DVD could differ depending on a number of factors. Included among the determining factors, they said, was 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.

    It sounds like a bunch of Amazon customers got together one day in a chat room, checked prices, and compared notes to see what factors affected the quoted price. They concluded that pricing wasn't a random 50/50 proposition.

    Even the quote from the Amazon spokesman doesn't support your 50/50 interpetation.

    We've learned that certain aspects of our site resonate with customers in different ways, and we are continually fine-tuning our site presentation to see how these variables affect customers' purchasing decisions," Smith said. Currently, she added, Amazon is testing the prices on select merchandise in its DVD store for a limited time, so different shoppers could indeed be charged different prices for the same product.

    However, Smith declined to say how long these tests will last or what the criteria are for determining which customers will be charged higher prices than others. "Some customers will pay the same for a certain item as customers paid last week, some will pay more and some will pay less," she said.

    Exactly what in the above implies a 50/50 split?

  • But if the web has no boundaries (as I've seen it said here), does the practice of differential pricing based on geographical area really make sense?

    From a consumer acceptance standpoint, it might if the web site can articulate a rational reason for the diffentiation, e.g., shipping costs, taxes, higher liability risks in a given geographic region, etc. From a practical standpoint, probably not.

    The real problem I see is that it was differential pricing by individual computer, not by individual consumer.

    Agreed. Under certain circumstances, consumers accept and/or expect price differentiation, e.g. Ladies Night, Happy Hour, Car dealers, etc. In others, In others, they will not accept it especially if it appears to be for arbitrary reasons.

    I'm trying to ask if dynamic pricing for each individual consumer is unethical if geographic boundaries for all intents and purposes do not exist as a factor in the transaction.

    Ethically? Depends on what set of ethics you are using. Practically, consumers will accept price differentiation if they can see a rational reason for the differentiation: volumn disconts, increase customers in off peak hours, etc. They will not accept it if they precieve it to be based on irrational factors, e.g. the color of shirt you are wearing.

  • by aufait (45237) on Friday May 18, 2001 @05:16AM (#214040) Homepage
    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.

  • by aufait (45237) on Friday May 18, 2001 @05:33AM (#214041) Homepage
    I mean, why charge ANYONE a lower price?


    Maximising profit is not the same as getting the highest profit margins.


    A simplistic example: You are a carpenter that can make 5 custom cabinets a week and materials cost $100 per cabinet. Experience has shown you that if you price your cabinets at $500, you have a profit margin of $400 per cabinet and will only sell one a week for a net profit of $400 per week.

    However, if you drop your price to $250 you can sell 5 a week. This drops your profit margin to $150 yet increases your total profits to $750. With the first pricing, you maximized your profit margins. In the second, you maximixed your profits.

  • It's called Supply and Demand.... It's also been the basis of our thriving capitalist society for the past 250 years.
    No. Supply and demand is the basis of free markets. Private ownership of capital resources is the basis of capitalism. They are not the same thing.

    Tom Swiss | the infamous tms | http://www.infamous.net/

  • "When demand increases, the price increases."

    * because there is less of a given resource per person *

    The poster was saying that soda is an elastic resource. Unlike gold, or diamonds, if more people want soda, soda manufacturers can just make more.

    Soda machines jacking prices up due to temperature has nothing to do with the scarcity of the resource. It's jacked up because it can be jacked up.

    I sure wouldn't want to foot medical bills for ER doctors who operated under that premises. "Let's see, how much money do you have? Why, what a coincidence, that is *exactly* how much your emergency surgery costs!"
  • by 1010011010 (53039) on Friday May 18, 2001 @05:52AM (#214047) Homepage
    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...

    - - - - -
  • by MosesJones (55544) on Friday May 18, 2001 @05:08AM (#214048) Homepage
    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.
  • ...and the local gas station raises prices _the next day_ citing OPEC as the cause of new shortages.

    Which is entirely reasonable. Supply and demand work off of more information than the immediate quantity at one instant in time. The knowledge that there *will be* a shortage immediately affects the perceived value, just like a company can announce a breakthrough product and have its stock rise immediately, even if they aren't shipping the product for months.

    A 2450 rackmount was nearly $1000 more expensive Monday morning when I logged in with our corporate account than it was Sunday night as a random web user. I immediately saw that I was getting raped for being a "corporate" customer.

    Or alternatively, you were given a discount for *not* being a corporate customer. You can think of it as individual customers being partially subsidized by corporations who are willing to pay more. With all the anti-corporate rhetoric I see here, I would think this would be applauded.

  • pfft.. first, order a couple computers. then order the one you want at a lower price. cancel orders for high price. problem solved, everyone happy.

    //rdj
  • You don't need sensors to jack up the price when demand rises or supply goes down. Merchants have always done that, and always will. Heck, consumers do the same thing, and pay less when there is bigger supply.

    And it's a good thing. It's how resources get allocated to where there is the biggest demand for them, and how a market system avoids shortages and surpluses. In the coke machine example that would mean that you got to the machine that hot day, it charged $1.25 as always, and was completely out of coke.

    BTW, I thought those "evil coke machines" were an urban myth from a year or two ago?
  • Usually sales are done at the highest possible price achievable - per transaction. I've yet to have a seller knock off 20% after I've already agreed to the price.

    The thing that bothers me the most about this pricing approach though is that the intent appears to be to obscure and confuse the prospective buyer, primarily with the goal of preventing comparative shopping.

    This predatory practice aims to get an extra buck by denying the consumer the ability to add a powerful, rational analysis tool. I'd expect most /. folks don't just buy that new drive, monitor, etc. by going to one vendor and paying whatever is asked.

    Instead, you'll shop around a bit and see which vendor has the best price. This is a natural opportunity when you're purchasing goods that are of comperable value (e.g. more like commodities).

    I'd doubt that it'll have much effect though. They'll get a few suckers who are easy marks regardless of where they shop. The fact that they're selling the same Intel processor, 3rd party motherboard, 3rd party drive, etc., the primary differentiator is price. Attempting to block consumers from evaluating that differentiator should only result in additional loss of market.

    *scoove*
  • Good points. This is what the airline industry does to me all the time; e.g. figuring since I'm a business traveler who determined two days ago that I need to fly today, they can charge me a lot more. (It does seem somewhat perverse to screw your best customers, when in many industries, those that buy more frequently are instead given greater discounts, but I can understand the premium for the available seat).

    The problem I see with this approach applied to computers or other interchangeable goods (e.g. a book from Amazon vs. the same book from Barnes & Nobel) is that the urgency factor isn't there.

    I can just as easily wait until next week for the same PC in most cases, unlike the airline ticket bought today or the bottle of Coke when it's 100 degrees F out.

    In both the Coke and the airline examples, the vendor is playing on a localized demand spike. You want the product much more right now, and I'm going to play on the demand by charging you more.

    Likewise, I pay less for routers than some folks since I'm buying from wholesalers. I can understand this variance in discount since I'm also purchasing in greater quantities, and have a bit more knowledge about the product (not to mention an established account and credit reference).

    So what am I missing that allows marketers at Dell or Compaq to charge consumer X differently than consumer Y for the same PC, same quantity, same general creditworthiness, etc.?

    *scoove*
  • Prices change all the time. They're dynamic anyway. This just sounds like "real-time supply & demand". It's how things work anyways, just updated more often.

    Jason
  • by JEDi_ERiAN (79402) on Friday May 18, 2001 @05:00AM (#214061) Homepage
    this is just another reason why it's better to build you own servers.

    E.

    -
  • The most efficient form is this is to sell all your goods at auction. That way your goods bring exactly what the market will bear. Previously, this was too difficult, but with the Internet and online auctions, it should be quite feasible for a company to move a lot of product that way.

    Personally I build my own computers, since that's the easiest way to control exactly what is put in the machine and also avoid the Microsoft Tax. Hmm. Maybe I should start auctioning them off...

  • Heh heh.

    Buy a Thinkpad from IBM (Disclaimer: Yes, they do pay my paychecks) and tell them to pre-load Linux on it.

    If I were in the market for a laptop, I have to admit that that Titanium Powerbook gives me a woody. And as soon as I got it, I'd give it a woody too. [debian.org]

  • Which is quite interesting, because @themoment, who is supplying IBM's software for this, got into the business of dynamic e-commerce (auction/RFQ/bid-ask markets) in the interests of increasing information flow to maximize efficiency in markets, not to fuck over people by concealing information. Hehe. We all sell out our technology to the highest bidder in the end though, and if IBM wants to pay to increase their margins, you'll sell to them.
  • My wife is shopping for a laptop, and a couple visits to Dell's web store left us both thoroughly pissed off.

    First you have to pick what type of customer you are. Hmm...I'm in education. My wife is in healthcare. We both work for a large business. And there's always "home user". It turns out that not only are the prices radically different each way you try it, but so is the selection of models you can choose. And of course, following the exact same click path at home in the evening gave us a different price than doing it at work in the afternoon.

    conditioned to believe that we have the right to be charged the same price as the next guy,

    Sure, it's not in the Constitution or anything. But it's what we want, and we're definitely not buying Dell, even though their deal was equal to (possibly better than, depending on the price of the minute) our backup choice [apple.com].

  • 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!

  • by BradleyUffner (103496) on Friday May 18, 2001 @04:57AM (#214078) Homepage
    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.
    =\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\=\ =\=\=\
  • I know the article isn't about the same thing as the Amazon price fixing, but what really is the problem with it anyway? Is it just because it's at a consumer level? I know businesses charge different rates for different people, why is this wrong in the consumer space? If people don't like the price they can just go to another store.

    Where I am employed full-time, we are a hardware (hammer and nails) wholesaler to small retail stores. We price things differently for various reasons, essentially coming down to 10 standard prices and any customer can be bound to a custom contract which modifies pricing further at the customer level. Essentially you go from a landed cost and through a pricing matrix for the customer to get their cost. And it may be as high as normal retail or as low as half of retail depending on the customer.

    When I do contracting, I also have different pricing schemes for each of my clients, depending on a much more arbitrary rule of whether I like them or not. :) Maybe not that arbitrary, but it's still different prices for different customers.

    Now, no one has a problem with this, lots of companies work the same way. But why is it wrong in consumer space? Just because it is consumer space? I guess I don't see a problem, as a consumer, if I don't like a price I will go somewhere else. Whether or not my price is the same as someone else is nothing I've ever considered to be gauranteed.

  • Hmmm. But if the web has no boundaries (as I've seen it said here), does the practice of differential pricing based on geographical area really make sense? The real problem I see is that it was differential pricing by individual computer, not by individual consumer.

    Basically, I guess I'm trying to ask if dynamic pricing for each individual consumer is unethical if geographic boundaries for all intents and purposes do not exist as a factor in the transaction.


    --Fesh

  • So it's all about finding the crossover point on the profit margin and total profit (as a function of price) graph, eh? *chuckle* Guess that saved me buying an economics book...


    --Fesh

  • I was trying to justify this demand-pricing scheme based on a function of supply and demand...but then realized I can't. It's just gouging. Sure, when demand rises and/or supply falls price rises. But when supply is flexible enough to match demand (as it the case with the efficient production and distribution systems Coke employs), price need not fluctuate. So, Coke machines raising prices due to temperature have nothing to do with supply. Sure, microeconomics dictate prices are set to maximize profit (therefore higher prices reduce volume sold and eventually will lead to lower profits - ala Apple Computer) but this is simply taking advantage of people in their weakness. If Coke supply wasn't fluid (sorry) and if Coke distribution had trouble keeping up with summertime demand, then I could see reason for spot price increases.

    Of course, the answer is - drink water that you bring with you.
    --

  • It's called Supply and Demand.
    Wrong [slashdot.org]. It's called gouging. Soda supply is elastic and is not affected by the weather. So price is based on demand alone - that's gouging.
    --
  • by Ronin X (121414) on Friday May 18, 2001 @06:36AM (#214087)
    Gouging can only happen when there's a monopoly.

    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.'

  • by jallen02 (124384) on Friday May 18, 2001 @04:59AM (#214090) Homepage Journal
    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

  • Higher temperatures cause a higher cost to run the machines which keep the soda cold, so actually, supply is based in part on weather. Also, faster soda purchases require more storage space and more frequent monitoring of levels of supply within the machines. This also increases the cost. As long as there is no restriction from you buying your soda somewhere else, and taking it with you, this is perfectly legitimate. You are paying extra for the convenience of having soda available at your whim, which other people have loaded into the machine in the hot sun.

    Gouging can only happen when there's a monopoly. While I can understand calling it gouging when a baseball stadium charges rediculous prices and doesn't allow you to bring your own food/drinks, most parks I know do not have such strict rules.

  • 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.

    Yeah, I bought 100 shares of Yahoo back when it was $150/share, and the next day they lowered it to $100/share. I was very pissed and I called up my broker and told him I wanted the difference back, but he told me there was nothing I could do. Needless to say I never went with *that* broker again.

  • Not so. The vending machine does not have an endless supply of contents, it must be refilled at irregular intervals. When sales are brisk, it is more likely to go empty for an extended period, preventing sales even to people entirely willing to pay $3 a can. By raising the price, supply and demand balance better. There are times when I won't even pay $1 for a soda...and others when I'd pay $5 (which is when the vending machine is most likely empty).

    Don't like the price? Bring yer own durn drink.

  • It's not because you look like you can afford more. It's because their retail division pitched a shit fit when they realized that the web site was likely to undercut their bricks'n'mortar stores. So they make sure that you can't get a better price by using the web than you would get at the nearest strip mall.

    politics, politics.
  • Airlines have been doing this for years. They have a product with a limited lifespan. A seat on a plane isn't valuable after the trip is done. So they adjust the price based on a number of factors (popularity of destination, time until trip, accomodations desired, etc) so that they maximize profit. Selling computer equipment which becomes obsolete in a matter of months is not really so different.

    We tend to have a knee jerk reaction that this is a bad thing but it can work out pretty ok in the end for thoughtful consumers. Sometimes you can't get something for a good price, sometimes you'll get a fabulous deal. Just depends on what you want and when you want it. Try to get the same thing everyone else wants at the same time, expect to pay a premium.

    In the end, the question is whether their terms will be favorable to consumers or simply a price gouge. Probably will be some of both. Don't like the approach, you always have the option to vote with your money about the approach you like.

  • Hmm...

    I can see witing a little script to check the price pages untill the price drops below a certain point. Of course everyone will start doing it just like automated stock trading.

    Any one want to give me a spot price for a June G6?

    ;)

  • I think I'll implement dynamic payment. That 1,200 check is in the mail! uh...uhh...wait a minute...I changed my mind. Here's 1,000. Did I say 1,000? I meant $800. Hey, if they can do it, why can't I?
  • by RobertAG (176761) on Friday May 18, 2001 @05:27AM (#214121)
    "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.
  • Well, you could use one of those ice spray thingies to get the thermometer from 110 to 37 degrees within seconds.

    Which begs the question if this is to be considered defrauding a Coke machine.

  • Amazon was right on, they were trying to find your maximum reserve price (the maximum price you're willing to pay) for an item (say a DVD), and sell it to you at that price, thus gaining them maximum revenue. The customer is still happy because they get the item and did not pay more than their reserve price. Everyone is better off, thus it's an optimum situation.

    This is excellent business (and probably only possible with a service like Amazon), but people were pissed off that they had to pay more than their friends...

    It's simple economics, people should've been happy to participate.

    eBay allows for the same kind of thing, but the general public doesn't seem to mind.
  • While I agree "our" economy is capitalist in that it relies on capital and private ownership, I completely disagree that "supply and demand" are the basis for anything that has happened.

    The money supply is tinkered with frequently-- in fact, just last week the Federal Reserve lowered a key interest rate. This has a direct effect on demand. Supply is frequently altered through subsidies and tax breaks-- especially in agriculture. Prices are often highly regulated for many of the most serious needs, telecom, energy utilities, etc. Finally, the government assists and prohibits businesses rather often. Think of zoning codes, antidrug laws, environmental laws, rent ceilings, and scads of other restrictions on supply and demand-- these restrictions prevent free market capitalism.

    But by all means, please don't let reality get in the way of your ideology. You "love it or leave it" types make me sick. You don't care about freedom and you certainly don't care about the U.S. But I guess as long as the trains run on time, you don't care what government or big business do. Oh excuse me, not the trains-- I mean, as long as you can hop in your SUV and commute at speeds of 55mph or higher... :)
  • I never suggested that the fundamentals of Econ 101 were suspect-- although I think for something commonly referred to as "Law of Supply and Demand" it is distinctly undertested by anything except the most rudimentary thought experiments-- certainly Adam Smith did not perform independent, controlled experiments in real economic groups to reach his conclusion. Certainly the whole "rational actor and full information" assumptions of econ theory should be examined given the role modern advertising plays in the U.S. economy.

    If we are experiencing prosperity now it has little to do with the markets being free and everything to do with how much the government interferes with the markets-- sure you can describe how this works using the Law of Supply and Demand, but at the same time the tinkering undermines the most efficient working of same-- again, if you believe the fundamentals of Econ 101.

    As to the Russia example: the government in Russia, where it was said we would have to wait 6 hours in line to get a cabbage, can tinker with supply and demand all it wants to, but if they have a very short supply of cabbages, it won't matter there will still be a shortage and rather than the economic price of cabbages going up, the cost increase is the amount of time you spend waiting in line for one (supply and demand where price is measured in time instead of dollars/yen/euros/seashells). If they had a decent supply of cabbages you would wait a lot less and no one would complain. The problem with their communist system appears to have been a scarcity of needed resources to produce sufficient goods and/or extremely poor management (or perhaps corrupt management) resulting in shortages-- the fact that they allowed for no redundancy or risk reduction by having only one producer, the state, is a major oversight.

    Using "supply and demand" to justify corporate gouging is a bit like using Darwin's theory of evolution to justify killing short, skinny people for fun. It's not a club to bash over the heads of people who don't think your price is fair until they agree that your unfair price is fair. However, I have to agree that if you are in the middle of nowhere and your sole source of fluid replenishment is a can of soda, you deserve to pay $2.75. Next time bring some water with from home.
  • by bouis (198138) on Friday May 18, 2001 @04:56AM (#214134)
    I can just picture people clicking reload a hundred times on Dell's website [dell.com] trying to get a lower price for their new laptop.
  • And notice how everyone hates that.
  • Auctioning benefits the seller, but its a hassle for the buyers unless it is something rare or something they really want. Very few people want to buy commodity items (like computer hardware) at an auction unless they think they will pay less than retail for it.
  • The problem I have with this concept is that I don't always get one-day turnaround on approvals when I'm buying machines.

    Not a bad point. However, allow me to make a few of my own:

    • %14 price jumps like you have in your example generally don't happen overnight. Even when major supply disasters happen (like the earthquake in Taiwan a few years ago), the price of DRAM didn't change that dramatically in such a short period of time.
    • Even if a similar event was to occur and the price of a given component change dramatically, its impact on the cost of the entire system isn't necessarily as big. The really volatile prices are the memory and CPU, which don't have to be the bulk of the cost of the computer.
    • Major component price changes would probably cause the vendor to update their price list anyway (they're going to want to minimize their effects on their margins). The new system simply allows the vendor to reflect the mundane day-to-day changes without extra effort on the part of their pricing staff.
  • Ok, I'll bite...

    A company simply cannot admit that they are trying to maximize their profits by milking every cent out of their customers

    Uh, why can't they? Although I don't see why you use the term "milking", a company saying that they're trying to maximize their profits isn't inherently bad. In fact, that's what being a business is all about.

    I simply don't believe that markets for most components are such that it would require intraday updates

    First of all, I'd like to see you explain your belifs here. Secondly, nobody said anything about "intraday" updates. Thirdly, there's really no "intraday" time period here; the price changes whenever it changes, and the consumer pricing system reflects that.

    And on what basis should I buy Dell's assertion that they pass on savings "in almost real time?"

    So don't. If you think Dell or anyone else is deliberately trying to skew prices for their advantage, then don't buy from them.

    However, it's not like Dell is committing a crime by charging a higher price on their components than what they buy them for. It's called "markup".

    ...None of that information is readily available when I visit IBM's site.

    You mention PriceWatch later on in your post. That's all the information you should need. If you can find a better deal for whatever you're buying, then buy from there, and quit whining about IBM not disclosing enough information.

    But I have no faith that they are operating in my best interests

    They're not... their operating in their own best interests. Their interests revolve around making a sale. One of the ways they do this is to offer a product at a price that best competes with all the other vendors out there. They're not trying to do you a favor.

    I hope you were just trolling; if you were, let me congratulate you.

  • ...dynamic pricing in this case refers to IBM, Compaq or Dell being able to change their prices to reflect the cost of the parts of a system. CPU and memory prices are notoriously volatile, and often change on a daily basis. This is just an attempt to give the customer the price closest to the actual cost of the machine on the day he ordered it.

    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.

  • by tmark (230091) on Friday May 18, 2001 @08:43AM (#214151)
    Contrary to the prevailing opinion here, this is not predatory. Price discrimination can be shown to improve the welfare of all, if it can be implemented properly (i.e. if arbitrage and misidentification of groups is impossible). It allows people to get the product at the price they are willing to pay, including people who cannot afford to pay as much. This maximizes everyone's welfare and minimizes what economists call dead weight loss, a cost borne by society as a whole.

    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.

  • You are correct with regard to the need for elasticity of demand, however I'm not certain of the need for 'groups' to be identifiable. I guess my issue is with the word 'groups' in this case more than them being identifiable. The goal here is one-to-one marketing, so there will be no groups of consumers to identify. With that in mind, you're right, IBM would need to be able to gather the required information to make an appropriate pricing offer. Amazon, of course, didn't have this problem. They had a wealth of customer information to base their pricing decisions on. You're right. This is certainly a major if not the defining factor in making effective use of dynamic pricing.


    --
  • This is antitrust legislation, intended to prevent monopolistic practices. The critical clause here is:
    where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination
    This area of law is of great interest to me but doesn't adress the case of price descrimination (in the economic rather than social sense).


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  • It looks like I had a typo in there. The math goes like this:
    $1,499 x 150 customers = $224,850 in added revenue, where in the example, those new customers would not have bought at the higher price of $1,500.

    --CTH

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  • by hillct (230132) on Friday May 18, 2001 @05:33AM (#214155) Homepage Journal
    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

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  • And what about when demand is low? Then you can get a bargain. It works both ways. In case you haven't noticed, most things in life are like this. Gas prices change daily, if not more often. Prices for food and clothing fluctuate. Computer prices fluctuate now for the same reasons, just slower. So this really isn't anything more revolutionary than the big boys using the technology they've been advertising for years in their own business (you know the ads: Our E-Business links your inventory to your web site!!)

  • It sounds as if for the purpose of this exercise that Dell, Compaq and IBM jump to the conclusion that the purchaser and end-user are invariably the same.

    In this industry, hardware specifications and prices are often checked and reported by consultants for their small business or corporate customers. It isn't untypical for the consultancy to cut orders for hardware and software, typically from separate suppliers, and deliver a bundled fully-configured system ready to transfer live data onto.

    In this type of scenario it's unusual for the end-user to take a quote and turn around immediately and say "that's a good idea". More often it takes a few days to clarify it into a definite commitment. Radical price fluctuations in that kind of timeframe play havoc not only with consultancy profit margins, but the viability of transactions in that entire business sector.

    Blowing off the website and going back to the telephone era isn't going to save MickeyD or Gerstner any money. These guys should read some of their own advertising and:

    Use the power of the Information Superhighway for business to drive new transaction models, synergize new partner dynamics in the online community, queef on their swivelchairs and blah, blah, blah.

  • In the corporate IT world, we've always dealt with dynamic pricing. Based on how often you buy, when you buy, and how much you buy. I'm not too sure how they will make this work with consumers, as they tend to buy in very small quantities (like 1) and not very often (maybe twice a year they buy hardware).

  • by tonywestonuk (261622) on Friday May 18, 2001 @05:01AM (#214177)
    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.
  • by markmoss (301064) on Friday May 18, 2001 @08:38AM (#214178)
    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.
  • by onepoint (301486) on Friday May 18, 2001 @06:10AM (#214180) Homepage Journal
    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
  • by MxTxL (307166) <.mlutter. .at. .gmail.com.> on Friday May 18, 2001 @05:05AM (#214184)
    From the article: The challenge for companies deploying a dynamic pricing application will be to make sure customers feel they have received a fair price. Customers may feel cheated if they discover that prices were lowered after they placed their orders.

    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.

"If that makes any sense to you, you have a big problem." -- C. Durance, Computer Science 234

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