Dynamic Pricing Returns 243
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.
EBay-itis? (Score:2)
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."
Re:The retail industry and common sense. (Score:2)
(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.
Fair? This ain't kickball... (Score:4)
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. ]
Re:Pricing transparency on the Net (Score:2)
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
Re:Coke machines anyone? (Score:2)
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.
This is crooked (Score:2)
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.
Re:this is evil, but... (Score:2)
The amish store down the road (Score:2)
hawk
I don't believe those were actually implemented (Score:2)
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? Capitalist? Not hardly (Score:2)
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
Re:Bartering!! (Score:2)
the man once got the price down on a bucket of chicken at Col. Sanders . . .
hawk
Re:The amish store down the road (Score:2)
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
Problem with fairness (Score:2)
Great way to build loyalty... NOT! (Score:3)
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.
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Re:Pricing transparency on the Net (Score:2)
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.
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Re:That's not smart (Score:3)
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.
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Like when OPEC lowers output... (Score:2)
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.
Re:Imagine... (Score:2)
Different cases (Score:3)
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!
Pricing transparency on the Net (Score:5)
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.
Re:The retail industry and common sense. (Score:3)
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This is known as price discrimination (Score:2)
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.
Re:This is known as price discrimination (Score:2)
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").
Re:That's not smart (Score:2)
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.
Re:You're already used to this model (Score:3)
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?
Re:Dynamic pricing is not altogether bad (Score:2)
1 * 20,000 = 20,000
Where did you get 244,850 I really want to know?
Re:This is known as price discrimination (Score:2)
WHOA! your an airline??
Re:Dynamic pricing is not altogether bad (Score:2)
Re:That's not smart (Score:2)
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
Re:That's not smart (Score:3)
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
Quaker merchants (Score:5)
So in time, people sought out Quaker merchants, because they knew they would get a fair deal.
-russ
Bazaar model of priceing (Score:2)
(I seem to remember a software movement based upon open knowledge, something like this )
Re:Coke machines anyone? (Score:2)
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.
You're already used to this model (Score:2)
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...)
Re:Fair? This ain't kickball... (Score:2)
Simply put more people are greedy then generous. As Sigmund Freud once said. Communism will never work because people are not good.
Re:Fair? This ain't kickball... (Score:2)
Re:Fair? This ain't kickball... (Score:2)
Re:That's not smart (Score:2)
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.
That's not smart (Score:3)
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...
Re:Not the same as Amazon's experiment (Score:2)
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.
Re:Coke machines anyone? (Score:2)
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.
Re:Not the same as Amazon's experiment (Score:2)
From the article:
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.
Exactly what in the above implies a 50/50 split?
Re:Not the same as Amazon's experiment (Score:2)
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.
Not the same as Amazon's experiment (Score:3)
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.
Re:That's not smart (Score:5)
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.
Re:Coke machines anyone? (Score:2)
Tom Swiss | the infamous tms | http://www.infamous.net/
Re:Coke machines anyone? (Score:2)
* 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!"
Re:Bartering!! (Score:3)
- - - - -
But you still bought the Coke... (Score:4)
Re:Like when OPEC lowers output... (Score:2)
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.
Re:The big problem (Score:2)
//rdj
It's always been like this (Score:2)
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?
Obsfuciated pricing (Score:2)
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
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*
Re:Obsfuciated pricing (Score:2)
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*
So it's not "Dynamic Pricing" (Score:2)
Jason
build your own servers! (Score:3)
E.
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Dynamic Pricing (Score:2)
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...
Re:Dynamic Pricing (Score:2)
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]
Re:strategy based on IGNORANCE - how to fight it.. (Score:2)
Dynamic pricing is obnoxious though (Score:2)
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.
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].
Most Places Do This - Retail (Score:5)
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 is different (Score:5)
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Pricing (Score:2)
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.
Re:Not the same as Amazon's experiment (Score:2)
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
Re:That's not smart (Score:2)
--Fesh
Re:Coke machines anyone? (Score:2)
Of course, the answer is - drink water that you bring with you.
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Re:Coke machines anyone? (Score:5)
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Re:Coke machines anyone? (Score:3)
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.'
Coke machines anyone? (Score:4)
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
Re:Coke machines anyone? (Score:2)
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.
Re:The big problem (Score:2)
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.
Re:Coke machines anyone? (Score:2)
Don't like the price? Bring yer own durn drink.
Re:The retail industry and common sense. (Score:2)
politics, politics.
Not that unusual (Score:2)
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.
Computer Futures? (Score:2)
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?
;)
Dynamic Payment (Score:2)
But is this REALLY valuable to anyone? (Score:3)
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.
Workaround (Score:2)
Which begs the question if this is to be considered defrauding a Coke machine.
Re:This is different (Score:2)
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.
Re:Coke machines anyone? (Score:2)
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...
Re:Coke machines anyone? (Score:2)
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.
this is evil, but... (Score:3)
Re:A Note: (Score:2)
Re:Dynamic Pricing (Score:2)
Re:For those who didn't read the article... (Score:2)
Not a bad point. However, allow me to make a few of my own:
Re:For those who didn't read the article... (Score:2)
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".
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.
For those who didn't read the article... (Score:5)
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 NOT PREDATORY (Score:3)
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.
Re:This is known as price discrimination (Score:2)
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Re:Dynamic pricing is not altogether bad (Score:2)
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Re:Dynamic pricing is not altogether bad (Score:2)
$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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Dynamic pricing is not altogether bad (Score:5)
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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Flip side? (Score:2)
What about VAR resale? (Score:2)
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.
Not too suprised (Score:2)
Bartering!! (Score:3)
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.
Nothing new about dynamic pricing (Score:4)
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.
Re:A Note: just a bit more info (Score:3)
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
The big problem (Score:3)
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.
The retail industry and common sense. (Score:5)
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.