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The Almighty Buck Businesses

Which Price is Right? 474

Posted by michael
from the cent-of-profits-in-the-air dept.
slashdotNum2Big2Register writes "An interesting article at fastcompany about how things are being priced nowadays. The only drawback that concerns me is how each item and price can be connected to an individual. Amazon was already found to be doing this with their prices."
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Which Price is Right?

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  • once you know (Score:3, Insightful)

    by geekoid (135745) <dadinportland AT yahoo DOT com> on Wednesday March 05, 2003 @12:09PM (#5441327) Homepage Journal
    how they determine who gets the lowest price, adjust your profile to match.
    • Except you can't... (Score:5, Informative)

      by zipwow (1695) <zipwow@NoSPam.gmail.com> on Wednesday March 05, 2003 @01:42PM (#5442191) Homepage Journal
      The point the article was making is that they select people at random within a demographic, and give them *different* prices. They call this scientific pricing because they maintain other people as the 'control', then gauge how you, the experimental group react to the new prices.

      Since the selection is random I don't see an obvious way to exploit it, with the possible exception of re-loading to see if the price changes. Presumably Amazon has some system for preventing that (like requiring you to log in).

      One of the interesting conclusions from many of the retailers interviewed in the article was that discounts should be smaller, but sooner. That sounds good to me, since in general I'm too lazy and impatient to wait around for the 'big sale', and end up paying higher prices. Maybe that same sentiment is why it works?

      -Zipwow
  • by RaboKrabekian (461040) on Wednesday March 05, 2003 @12:12PM (#5441339) Journal
    The idea of pricing products is to charge every consumer the maximum amount they're willing to pay. The trick is that it's usually very hard to have a purshasing system that allows such price variance. Airline pricing is one example - the closer you are to the date you wish to fly, the higher the price. (This is a vast oversimplification, but you get the idea). This is because business travelers, who need to fly at a moment's notice, are willig to pay much more than a recreational traveler, who's planning vacations 6 months in advance and shopping for the best deal. Businesses like Amazone are going to try and use every edge they can to increase their margins. From their point of view it's a great idea to use the technology they already have.

    • by callipygian-showsyst (631222) on Wednesday March 05, 2003 @12:31PM (#5441482) Homepage
      The idea of pricing products is to charge every consumer the maximum amount they're willing to pay.

      This turns the conventional (American) model of retailing on its head! Typically, the POORER you are, the MORE you pay for things.

      Think of the services that we offer to poor people:

      • Rent-to-own furniture stores
      • Check-cashing stores
      • Payday loans
      • Car loans
      • 19% Credit Card interest (on secured cards!)

      Conversely, better-off people never pay for anything! For example I can't remember the last time I paid for an airline ticket! My company flys me around a couple of times a month, and that keeps me well-stocked in frequent flyer miles. I get samples of new computers, software, etc, because companies think I'll influence developers and purchasers.

      The super-rich get even more freebies. For example, I know a bunch of folks here who got free electric cars from GM because GM wanted people in affluent neighborhoods to see others driving them.

      Now, I'm not implying something's wrong here--I think many people are poor because they make bad financial choices (like payday loans!) and not because the "system" is against them. But it's true that the RICHER you are, the LESS you pay for things. If Amazon (or whoever) manages to reverse this by charging more to people who won't notice, it'll turn American marketing on its head!

      • If you get frequent-flyer miles from flights paid for by your company, don't those extra miles also belong to the company? If you use them for personal travel you should at least get explicit permission for this.

        There was a company making a business model out of helping other firms work around the incentive structures of airlines (which were thought to corrupt employees, making them choose the flight with the best perks, rather than the cheapest). So firms would accumulate the extra miles for themselves. I can't remember the company's name now, however.
        • by sulli (195030)
          No miles, no business travel. Miles are a very appropriate perk for sitting in an O'Hare departure lounge when one could be at Ocean Beach (for example).
        • If you get frequent-flyer miles from flights paid for by your company, don't those extra miles also belong to the company?

          No. Frequent flier miles are tied to the name on the ticket and not to a corporate entity. If the airlines allowed corporations to accrue miles as opposed to individual employees, then the corp would purchas far less tickets with actual money, and far more with mile, hurting the bottom line.
      • Fleecing the poor (Score:5, Insightful)

        by SpikeSpiff (598510) on Wednesday March 05, 2003 @12:42PM (#5441583) Journal
        At first I read this as a troll. But I think the issue here is that the poster does not recognize that risk costs money.

        Financial services to the poor have, all else equal, much higher default risk. And default costs swamp everything else. Consider that the margin over cost of funds for most consumer credit is 2-3%. A default rate of 1% destroys the profitability.

        And the proof of this is in the market. Credit companies are neither bashful nor shy. If there was money to make, your friends and Cap One and First USA would divert some of 1 billion or so peices of mail then send. Alliance capital tried and went bankrupt. Cap One tried, but was punished in the stock market for the risk.

        The other minor effect is transaction costs. There is a smaller denominator to spread costs across. 1% of an $800 paycheck is different than 1% of a $200,000 mutual fund purchase.

        This reminds of the myth about women being paid around 70% of what men are. If true, there must be someone out there hiring only women and killing their competitors with wildly lower labor costs. Ought to be easy, women are around 40% of the labor pool.

        Oops. Doesn't seem to be happening. I know I'm willing to try it.

        • Re:Fleecing the poor (Score:5, Interesting)

          by sphealey (2855) on Wednesday March 05, 2003 @12:53PM (#5441680)
          Financial services to the poor have, all else equal, much higher default risk. And default costs swamp everything else. Consider that the margin over cost of funds for most consumer credit is 2-3%. A default rate of 1% destroys the profitability.

          And the proof of this is in the market. Credit companies are neither bashful nor shy. If there was money to make, your friends and Cap One and First USA would divert some of 1 billion or so peices of mail then send.

          The "higher risk" theory explains a difference in credit costs of up to x%. We can argue what x is: 10, 20, 50? But it does not explain differences in credit costs of 100, 200, up to 10,000%.

          And no, SuperBank isn't going to jump in to the low end market just because there is a profit to be made, for two reasons: historical under-the-table handshake agreements not to do so (see Crabgrass Frontier, referenced in another post, for an example of how this was done with home mortgages for 90 years) and the fact that buttoned down, upper-middle-class bankers flat out don't like to do business in less savory neighborhoods. If they don't feel comfortable driving the BMW there, they won't make a loan there either, regardless of the potential profit.

          sPh

          • Re:Fleecing the poor (Score:5, Interesting)

            by milo_Gwalthny (203233) on Wednesday March 05, 2003 @01:32PM (#5442096)
            First, just for kicks, I'd like to see an example of a 10,000% difference in credit cost. A very cheap mortgage, one of the cheapest of consumer credits, is about 6%, all in. That would mean there is someone charging 600% to some poor devil. Doubtful--yes, illegal--almost certainly. If you're talking about "no interest" car loans, you should read the financial statements of a car company with a finance division, and try to seperate credit cost from price. You'll find that the credit cost GMAC records is not what you see in the flashy Pontiac ad.

            Second, plenty of SuperBanks are trying to do business in less affluent neighborhoods while making money, but quietly. For instance, many large banks have been trying to buy into the storefront check cashing business. They try to stay low profile because the vig these places extract is insultingly high, and they don't want to insult anyone. On the other hand, if they opened their own, they realize they could not charge much less and make money.

            There are plenty of places that even you wouldn't want to drive your car (despite your superior attitude) that greedy capitalists have been happy to invest in--think Nigeria, Colombia and some of the grittier ex-Soviet republics: you will certainly see the familiar red of the Coca-Cola logo and perhaps the golden arches, and you probably won't see the oil/arms company exec behind the tinted glass of his armored Mercedes.

            If there is money to be made, believe me, someone will be there to make it.

        • I wouldn't recommend instituting a 'women-only' hiring policy, unless you feel like running afoul of Equal Opportunity Employment regulations...
        • Rehash (Score:5, Insightful)

          by urbazewski (554143) on Wednesday March 05, 2003 @01:32PM (#5442103) Homepage Journal
          This reminds of the myth about women being paid around 70% of what men are. If true, there must be someone out there hiring only women and killing their competitors with wildly lower labor costs.

          This is rehash of an old, flawed argument:

          1) Assume that the labor market is perfectly competitive.
          2) Assume that competitive markets will eliminate wage disparities between equally qualified men and women.
          3) Observe that wage disparity exists between men and women.
          4) Conclude that "unobserved differences" between men and women explain the wage disparity.

          What justification is there for assumptions 1 & 2?

          One point of the article is that businesses can make themselves better off by segmenting the market and selling products to different people for different prices. If businesses can do this when it comes to selling products, why can't they do the same for buy products, like say, labor?

          The argument that markets will eliminate wage differentials based on gender or race assumes perfectly competitive markets composed of identical goods with many anonymous buyers and many anonymous sellers with full information available about the quality of the products and all prices. Every single one of these conditions is absent in the labor market.

          • by SpikeSpiff (598510) on Wednesday March 05, 2003 @01:53PM (#5442349) Journal
            I agree. No market is perfectly competitive. Most markets fit somehwere on the continuum between perfection and complete regulation.

            This has no impact on the arguement at a Micro-Economic level.

            Hypothetically, imagine that you are a clever entrepreneur, and start your own restaurant. The restaurant is doing well, so you decide to hire a IT person. You advertise on Monster and get 50 resumes. (In this economy you get 500 resumes). You winnow the list to the 10 qualified applicants, and then discover that 4 of them want 30% less money. Which do you hire?

            This decision certainly does not depend on anonymity, identical applicants, or PERFECT competition. It just depends on smart people doing a good job of hiring.

            I don't believe that we have a gender gap in productivity or ability. I believe we have a statistics gap.

        • Actually, there is a broad trend toward underservicing poor areas and replacing them with legal loan sharks. Local branch banks close down and in goes a payday loan outfit, often owned by the bank or it's parent corp.

      • While you're right about predatory practices that American businesses often engage in, this is a different issue altogether. Those practices mostly hinge on the scarcity of money among the poor, and hence their greater tendency to utilize expensive credit.

        Think of the automobile market, which was one of the first examples of someone creating divisions within the market (at GM) to capture more of the money that consumers were willing to spend. The (relatively) poor can buy cheap K-cars, while those with more money settle on better-equipped models, and those with more go for Merecedes, and so on. Without differentiation of products, everyone would have bought a car, sure, but they wouldn't have paid nearly as much for the cars, and the automakers wouldn't have made anywhere near as much money.

        In a way, this is an extension of the product-differentiation model, with the idea being that differentiating by individual rather than by class can get them even more of the consumers' money. Inherent in all this, of course, is that they want their tactics to remain (at least relatively) hidden from consumers, fearing the backlash.

        I doubt the legality of that, so we're perhaps more likely to see all businesses in a given area settle on similar practices, and then it doesn't matter if they're open about them.

      • by Hentai (165906) on Wednesday March 05, 2003 @01:00PM (#5441747) Homepage Journal
        Now, I'm not implying something's wrong here--I think many people are poor because they make bad financial choices (like payday loans!) and not because the "system" is against them.

        You think maybe they wouldn't HAVE to make those "choices" if maybe they weren't poor? And maybe they wouldn't BE poor if they didn't have to make those "choices"? Christ, man, can't you recognize a feedback loop when you see one?

        I'd say about 50% of poor people are poor because they're stupid, and the other 50% are poor because they're oppressed. I've nearly slid into poverty twice now, and I assure you, the further down the slope you slide, the harder it is to find purchase and keep from sliding further.

        I'd also say that about 20% of rich people are rich because they're shrewd, and the other 80% are rich because they're priveleged. I've nearly "made it big" three times now, and I assure you, it's not WHAT you know, it's WHO you know.

        "To those that have, much shall be given. To those that have not, even that which they have shall be taken away." Why is one man's fundamental human will "worth" more just because his daddy can fund his entrepeneuralship and get him the right connections to land 50 million dollar deals, while another man - with just as much talent and integrity - is forced to work at McDonalds and get nickeled-and-dimed to death, paying rent on a house he'll never own, taking loans just to feed himself, until one day a computer glitch fucks up his credit rating and his only two choises are starve or steal?

        There's gotta be a better way.
        • I'd say about 50% of poor people are poor because they're stupid, and the other 50% are poor because they're oppressed

          What the heck does this mean? The poor are no more "oppressed" than the rich are. If a rich guy doesn't pay his bills, you can bet that people are going to go after them just as much as a poor man that doesn't pay.

          I'd also say that about 20% of rich people are rich because they're shrewd, and the other 80% are rich because they're priveleged...it's not WHAT you know, it's WHO you know

          And I'd say that you are full of crap. If knowledge had absolutely no bearing on your wealth, why is it that a college graduate earns 60% more [state.mn.us] on average than somebody with a high school diploma? While I don't deny that some people are rich because of a priveleged position that they were in, it is certainly not a limiting factor. Some of the richest people in the world started out without knowing anybody (think of the Sam Waltons and Bill Gates of the world).

          while another man - with just as much talent and integrity - is forced to work at McDonalds and get nickeled-and-dimed to death...

          I would say this other man is most definately not as talented, otherwise he wouldn't be working for McDonalds. It doesn't take any talent at all to sit around and bemoan the great injustices that have been heaped upon you, while blaming the rich or privileged for all of your problems. A truly talented person would find a way to use his skills constructively, regardless of this position.

          There's gotta be a better way.

          Well, thats fine and dandy. A typical leftist approach is to find fault with anything they disagree with, but when it comes to actually providing a constructive alternative, they suddenly fall silent.

          I'll give you a hint. Currently, there is not a better way than the way we do things. Capitalism is the only system that has shown constant success over the past 200+ years. Note that the alternatives have all been dismal failures.
        • I've nearly "made it big" three times now

          This statements lends itself to the way you look at situations. It isn't about making it big, instead it is about making a sustainable positive flow income that one saves. "Big" people are dreaming just as much as those who believe in the lottery or making it to the NBA. Anyone can change their situation in life in America, despite who they know, if they are calculated and persistant.
          • Actually, I didn't mean for either of them to imply a preferred direction. I've chosen not to "make it big" each chance I got, specifically because I couldn't scrub hard enough when I got home from talking to the people I was forced to associate with. I'd far rather make $35,000 per year, quietly coding database front-ends while I tinker with my artwork at home, than spend the next ten years "buying and selling men like you for breakfast", as one of my almost-partners said to a friend of mine.

            Yes, it's probably a waste of my coding talent, but I'd rather it be wasted than misused (read: used in any way *I* disagree with).

            And to respond to the inevitable counters: that's how I want it. Some people choose to be paid for their talent in cash; I choose to be paid in leniency. I can afford to do what I want, and so I don't try to grab at more. Granted, it sucks sometimes when unforseen events push my finances into the red, but economics is a negative-sum game, and I'd rather soak that karma than pass it on.

            I don't bitch because MY life sucks; I bitch because many of the people I choose to associate with, people just as insightful and charismatic as the multi-millionaires I've shaken hands with, are starving to death on street corners for no better reasons than an accident of birth.

            And before you go off about left/right, I happen to be a die-hard capitalist, and I would LOVE to see true capitalism implemented in America. It's not going to happen in our lifetimes without a revolution, but if it did, we could ALL share in the propserity.

            What we have is corporatist fascism, thinly disguised as consumerist capitalism. If you believe otherwise you're deluding yourself.
      • by urbazewski (554143)
        Typically, the POORER you are, the MORE you pay for things.

        This needn't be inconsistent with convential economics --- the poor have little bargaining power and few alternatives, which leads to higher prices. For example, poor people could pay more for groceries because they don't have transportation to other, cheaper grocery stores. There's no reason for a store that has a large percentage of people walking (as opposed to driving) in to compete on price. The empirical evidence on whether prices for groceries in poor neighborhoods are higher is mixed. In addition, poor people often have limited access to produce and some staples, because smaller stores located in urban areas limit their items to high margin highly processed food.

      • Typically, the POORER you are, the MORE you pay for things.

        The glaring exception to this, of course, is income tax. The richest 1% of Americans account for about 20% of all taxable income, but the pay over 37% of all income tax revenue (Source [ustreas.gov]). That means that dollar for dollar, the rich pay alot more tax than the poor. In fact, the top 50% of wage earners in America account for over 96% of all tax revenue.
      • I've been both dirt poor and reasonably well off. I prefer the latter of course, but at least I'm in a position to see both sides.

        Typically, the POORER you are, the MORE you pay for things

        Rent-to-own, etc: I've worked in rent-to-own stores. 5% of my time was delivering new televisions and sofas. 95% of my time was spent collecting. There is a huge risk when dealing with people that have no credit rating. And credit ratings do not discriminate on the basis of income. Would you extend credit to Wynona Rider and Michael Jackson? I wouldn't! But I know many poor people with excellent credit. How do you get good credit? Consistantly ay your bills in a timely manner. If people will not pay their bills in a timely manner, how can you expect them to make rental payments in a timely manner?

        Car loans: Hey! I've worked in auto dealships too. Guess who pays cash for cars? No one! If they're a member of a credit union (there's that evil "credit" word again), then they'll go through that instead of the dealship, but they all take out loans on cars. I've only once ever heard of someone paying cash for a new car.

        Secured credit cards: Damn those interests are high! I had one once. I had one because I had no credit. But I paid my credit bills in a timely manner and I got good credit, and subsequently got unsecured cards with lower interest.

        The poor don't pay more than the rich, but those with bad or no credit will pay more than those with good credit.

        Conversely, better-off people never pay for anything!

        Now that I'm better off and in the top %7 of income, please inform me how I can get away without paying for anything? I hear this now and then, but I guess I don't belong to the right country clubs or something, because the liquor store still charges me the same $7.99 for Anchor Steam Beer that they charge to the poor guy down the street. The airlines still charge me for airline tickets. The auto dealerships still expect me to pay for cars. The only free samples of software I get are cheapass .NET and AOL coasters. Oh sure, sometimes I get to fly at company expense, but funny thing is, the company keeps those frequent flyer miles.

        If I walk into a store wearing a nice suit and say "give me something free because I'm rich", they'll call the cops!
    • by pubjames (468013) on Wednesday March 05, 2003 @12:57PM (#5441710)
      Airline pricing is one example - the closer you are to the date you wish to fly, the higher the price.

      I don't know if it is the case in the USA, but over here in Europe the rules about airline pricing are being rewritten.

      Airlines could charge more before basically because they had a monopoly on routes, and agreements between them. So if I wanted, for instance, to fly London to Barcelona tomorrow, there were only a couple of the big airlines that I could buy a ticket from, and they didn't really compete. So I might fly with British Airways or Iberia, and both would charge about £600 for it.

      Now there are about five airlines which fly the same route daily, including several budget airlines that have disrupted the traditional model. I just checked on the example I gave above. With British Airways I can fly to London-Barcelona tomorrow for £427. With EasyJet, it will cost me £81.50. I fly between European countries regularly for business, and I don't fly with BA or Iberia anymore!

      In Europe the older airlines are really struggling, precisely because the traditional way of pricing seats no longer applies.
  • Old Hat (Score:5, Interesting)

    by RazzleFrog (537054) on Wednesday March 05, 2003 @12:13PM (#5441347)
    Catalogs have been doing this for years. Why do you think they ask you for that catalog code when you call up to order? B&M stores do this by region also. I was in the Gap in Mt. Kisco New York the other day and jeans were $10 more than the same thing in Danbury, CT.
    • Re:Old Hat (Score:5, Insightful)

      by corbettw (214229) <`moc.oohay' `ta' `wttebroc'> on Wednesday March 05, 2003 @12:30PM (#5441475) Journal
      "I was in the Gap in Mt. Kisco New York the other day and jeans were $10 more than the same thing in Danbury, CT."

      Don't forget that state taxes are higher in NY than CT. Sure, the sales tax won't show up on the price tag, but all the other "incidental" taxes (road taxes and tolls, for instance) will. Also, if one store has a higher rent or CMA (Common Area Maintenance), expect higher prices. So the $10 might not be all bilking the customers, there could be higher costs in one area (most likely it's a combination of all of the above).
    • Re:Old Hat (Score:4, Insightful)

      by Kevin Stevens (227724) <kevstevNO@SPAMgmail.com> on Wednesday March 05, 2003 @12:36PM (#5441533)
      Well store prices are also affected by costs- labor, rent, proximity to warehouses, etc- since they are also driven by profit margins. Im not really sure where Mt. Kisco is, but I will assume it is right next to the sticks, or a few miles down the road from bumblef*ck. Danbury, CT has a higher cost of living, and as such, has higher prices. Most of CT is pretty well off, so the laws of supply and demand come into play too. My point is- It is not quite as shady for a retailer to do this as a catalog... who other than shipping costs (which they already clip you for anyway) should have a fixed cost of doing business for a given region.
  • by sphealey (2855) on Wednesday March 05, 2003 @12:13PM (#5441352)
    Finally, she pleaded, "If I talk about prices, I could go to jail." The spokeswoman for a telecom company said, "We're not going to talk about prices, and the fact that we're not going to talk about it is off the record. You can't use the fact that we won't talk about prices in a story."

    But it was not until I traveled to Chicago, to a Professional Pricing Society conference, that I got a full picture of how sensitive the subject is. On my first day, I was asked to leave the trade-show exhibits -- the place where vendors beg for attention. A guard was posted at the door, in case I tried to slip in. On the second day, Eric Mitchell, president of the PPS, spotted me standing in the lobby outside the meeting rooms and scowled.

    Given that most of the practices that the author describes are gross violations of the Robinson-Patman [businesslaws.com] and Sherman Anti-Trust Acts, I am not surprised that no one wants to talk about them on the record! Per-person pricing for indistinguishable goods was made illegal in the US in the 1920s, and as far as I know has never been made legal since. The real question is how businesses get away with such behaviour today.

    sPh

    • by mugnyte (203225) on Wednesday March 05, 2003 @12:34PM (#5441507) Journal

      He states this later in the article: It's not per-person, it per market state. Airline prices are reactive to the market 17 replications a week. Also, the ability to offer incentives are legal, whereby a frequent customer, a collaborative discount with a hotel (in this example) changes price.

      When it reads that prices are all over the map, you can be sure that booking a flight with a friend will result in similar prices at similar times if you sit int he same purchaser demographic. That is not per-person.

      mug
      • by sphealey (2855) on Wednesday March 05, 2003 @12:41PM (#5441571)
        He states this later in the article: It's not per-person, it per market state. Airline prices are reactive to the market 17 replications a week. Also, the ability to offer incentives are legal, whereby a frequent customer, a collaborative discount with a hotel (in this example) changes price.
        I hear you. Problem is, if there are 300 million residents of the USA, how do I distinguish between "market pricing based on 300 million market states" and per-person pricing?

        sPh

      • by swb (14022) on Wednesday March 05, 2003 @02:41PM (#5442872)
        When it reads that prices are all over the map, you can be sure that booking a flight with a friend will result in similar prices at similar times if you sit int he same purchaser demographic. That is not per-person.

        Two years ago I booked a trip to New Orleans (personal trip, not business) on NWA. I called the reservations agent on a Sunday morning five weeks before my trip and got a quote on a ticket of about $250. Three hours later I called back wanting to book the ticket, and I got a price of $425. I checked the web site and the price was the same $250 I had been given earlier. I called the reservations number back and was given an intermediate price of $290.

        I ended up booking the ticket on the web (since it was ultimately the lowest fare), but to this day I'm baffled on how the ticket price fluctuated so wildly. I was booking my ticket well in advance, on a non-business day, for an unpopular time slot (it was an 8PM flight on a Wednesday) and paying cash (no FF miles or number involved). I'm not aware of any festivals, conventions or other activities going on and the flight itself had a fair number of empty seats.

        I can only surmise that the pricing models used are highly reactive to inquiries in addition to sales and that my inquiry plus others may have stimulated the demand-pricing mechanism to start cranking up the fares.

        Short of that explanation, it just struck me as roulette pricing. Spit out a high price occasionally and see what happens.
    • "The real question is how businesses get away with such behaviour today."

      bool getAwayWithIt(opinion& publicopinion, law& thelaw, gains potential, polititian congresscritter) {
      bool permission=false;
      while (!PRMess(publicopinion, thelaw, potential) && permission!=true) permission=congresscritter.lobby.addmoney();
      if (permission==true) thelaw.setEffect(NULL);
      return permission;
      }
    • IANAL, but in business school they taught us that the law protects B2B transactions, not B2C.
    • by nelsonal (549144) on Wednesday March 05, 2003 @12:48PM (#5441628) Journal
      Those acts deal with predatory pricing, which is pricing to eliminate other businesses. It is usually defined as pricing below marginal cost, or as a proxy pricing below average variable costs, since there is no sense in a one term price below variable cost. Company's occasionally will sell at a loss, if the loss of production is less than the loss that could be had if the plant were shut down and fixed costs were eaten. In a simple case, imagine if firing someone costs $30,000, but employing them for $40,000 only brings in $20,000 in profit. You would keep them assuming you planed business to pick up in less than 1.5 years.
      Pricing below average variable costs means that you are paying an employee more per hour than you bill, as one example. Obviously in that case, you would be better off eating your fixed costs, since you aren't covering them anyway. That act only applies to price discrimination that impairs competition. You have to do it in such a way to close down mom & pops with the goal of monopolizing an industry. Per person pricing for indistinguisable goods are legal, if he is making a profit on all his sales. Rebates would be a good example of this, by using a rebate to catch the highly price sensitive, the retailer can capture both price sensitive sales (at the lower margin), while charging more to those who are less price sensitive. Also the section on functional discounts gives most companies plenty of room to avoid breaking the law.
  • to be expected (Score:4, Interesting)

    by flynt (248848) on Wednesday March 05, 2003 @12:14PM (#5441355)
    this is only an extension of regional pricing. take a trip around town and look at gas pricing in different areas, it differs dramatically. now, each individual is becoming his/her own region.
    • gas is slightly different though, since different gas stations pay different amounts based on property values for their stopres, different local taxes, etc. . amazon does not. also, since it is the world wide web, they are operating in one region, the world.
  • by Akardam (186995) on Wednesday March 05, 2003 @12:14PM (#5441359)
    Different prices for different people or companies for the same product is not a new thing. Anybody who's purchased a car knows this. Based upon things like your credit rating, how much you put down, how badly the salesman wants to get rid of it, etc, you're going to probably pay a different amount than the guy right next to you, even if it's off by only a couple pennies. The same goes for my company. We custom build PC's. Our corporate customers, who for example buy in bulk, are going to pay less per unit than Joe Schmoe who walks off the street.

    Call me old fashion, but I've always seen this as normal. Not necessarily fair, but at least something not entirely unusual, or dangerous, or something to get up in arms about.
    • by secolactico (519805) on Wednesday March 05, 2003 @12:24PM (#5441431) Journal
      Anybody who's purchased a car knows this.

      Well... no. That's bargaining, and I believe it is a different subject.
      Usually, a car has a starting price. This is the official price. Everybody starts off the same price and then negotiates a lower one. If you walk into a car dealership and the salesman changes the price after taking a look at your clothes, then yes, it's the same.

      Where I live, car dealerships have a "ticket price" on each car displayed. I don't know if they are required by law to do it, tho.
      • Having purchased a car recently might have been why :)

        Anyway, AFAIK the sticker price is what the manufacturer thinks the car should be sold for, in other words, the MSRP. But even this will vary from region to region! The bargaining aside, you will pay a different price based upon, as I said, things like your credit history (determines what kind of rate you get on any financing). This is still profiling, which is exactly what Amazon did and others do from time to time.
    • Someone else has already addressed haggling over car prices, I'll address bulk buying. There's a huge difference in having break points on bulk items than in charging two different people the same price for the same amount of the same object(s).

      For instance, you and I go into Kinko's and order business cards. We each order three color cards, on the same stock, with the same ship-by date. If we both order 100 cards, we should pay the same amount. If I order 1000 cards, I'll pay more overall, it'll just be cheaper per card (Kinko's wants to encourage you to buy more cards, and the highest cost to them is in the initial setup, anyway, so it's pretty much all profit after that gets paid). BUT, if we both order 100 cards and I pay more because I'm richer than you (or perceived to be), that's wrong.
  • by molarmass192 (608071) on Wednesday March 05, 2003 @12:15PM (#5441361) Homepage Journal
    using a Netscape Web browser turned up a quoted price of $64.99 -- 35% off the original price of $99.98, according to the online retailer. But several seconds later, a similar search performed with Microsoft Corp.'s Internet Explorer browser resulted in a price of $74.99 for the same product.

    As if folks needed more reasons to use Mozilla!
  • by ryanvm (247662) on Wednesday March 05, 2003 @12:15PM (#5441366)
    From the ComputerWorld article:
    a search for the Planet of the Apes DVD on the Amazon site using a Netscape Web browser turned up a quoted price of $64.99 [...] several seconds later, a similar search performed with Microsoft Corp.'s Internet Explorer browser resulted in a price of $74.99 for the same product
    Damn, if that's not a reason to use Mozilla, I don't know what is.
    • Yes, but doesn't it sound like an imminent lawsuit by Microsoft and others once they find out that users of their browser are having to pay more?
      • Re:Use Mozilla... (Score:3, Informative)

        by dissy (172727)
        I dont think its so much due to the fact its IE vs Netscape, the reason they pointed this out was because its a totally different browser with different cache/history/cookies/etc so the server had no way to know it wasnt the same person.
  • P2P pricing system? (Score:3, Interesting)

    by cmburns69 (169686) on Wednesday March 05, 2003 @12:15PM (#5441368) Homepage Journal
    "The only drawback that concerns me is how each item and price can be connected to an individual."

    Should this come to pass on a widespread basis, it could be counteracted by some sort of open pricing network, similar to P2P.

    Somehow the system knows what prices I can get for an item, and what prices anybody else logged in can get, and routes the purchase through that person...

    Similar to pricewatch, but more community based rather than retailer based... .. Anyway, its just an idea! ..

    An online Starcraft RPG? Only at [netnexus.com]
  • More power to them (Score:2, Insightful)

    by BillFarber (641417)
    This is capitalism. They aren't permitted to collude with other businesses, manipulate the market, or discriminate. Other than that, they have the right to set prices anyway they see fit. They can use the information they glean from you to adjust prices. However, the consumer must keep in mind that they need to get as much information about the product and competing sources as well.
    • Yet the gas companies seem to get away with it. It's not as simple as "look out the window see what the guy next door is doing." Sometimes in the case of price ways it might be... but I remember hearding of a "gas guy" who used to ask various companies what the price should be, and passing the info on so they could all hit the same highs.
  • catalogs (Score:4, Interesting)

    by mgkimsal2 (200677) on Wednesday March 05, 2003 @12:17PM (#5441394) Homepage
    Not quite individual level, but we get many catalogs for previous occupants of our current office space. Dell, in particular, sends multiple catalogs here. What I found very interesting is that 2 Dell catalogs - indentical in products offered - often have different pricing based on the recipient. The even more interesting thing is that both recipients worked for the same company at the same time, but one was male and one was female, and they were being offered at different prices. The 'product code' was the same, but the 'catalog code' (or something like it) was different. I can not remember if the prices were higher for the male or the female - sorry...
  • by patmfitz (517089) on Wednesday March 05, 2003 @12:18PM (#5441396) Homepage
    how things are being priced nowadays ... Amazon was already found to be doing this with their prices
    The article about Amazon was from September of 2000 - after which they stopped doing it.
    • by luzrek (570886) on Wednesday March 05, 2003 @12:40PM (#5441570) Journal
      The article about Amazon was from September of 2000 - after which they stopped doing it.

      Not true, in December 2002 we wanted to buy the Band of Brothers video collection for my grandfather-in-law. When my wife and I looked at it (we are frequent amazon.com customers) it was $80. When my mother-in-law (doesn't shop online) looked at it it was $100. Ergo, Amazon.com still does the individualized pricing thing.

      The individualized price thing was commonly done in retail until Sears and Roebuck introduced the single price concept near the beginning of the 20th century, allowing them to have more poorly trained sales staff therefore allowing them to make lots of stores very quickly. Very high end and very small volume stores have never stopped doing it since the salesmen/owners at these stores ussually have a good idea what prices their customers can tollerate. Large stores couldn't get to know the customers well enough to do this. Looks like large stores track you well enough to do this now.

  • by sdjunky (586961) on Wednesday March 05, 2003 @12:19PM (#5441404)
    "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"

    Last I checked... If you want to determine if "site changes" cause increase in purchasing etc you leave the price of a product static. This way you can determine if the increase came from better navigation. The price would be your static variable.

    I bet that most people who read this ( not those of slashdot but of the world at large ) would fall for this simple and elegant lie.
  • by mcd7756 (628070)
    We're offering this post for $5.00. Shortly we will raise the price by 11.2%. Eventually you may read it for free, but only if you have the coupon.
  • by Ayandia (630042) on Wednesday March 05, 2003 @12:22PM (#5441421)
    Hey, is that a discrimination lawsuit I smell?

    Amazon Exec 1: "This customer buys Precious Moments figurines."
    Amazon Exec 2: "They must be some middle-aged soccer mom. Charge them double for new releases, and half price for Disney."
    Amazon Exec 1: "What about customers who buy How to Make a Million Dollars a Second?
    Amazon Exec 2: "Charge double for everything. They'll be able to afford it eventually..."
  • pricing discussions (Score:5, Interesting)

    by mgkimsal2 (200677) on Wednesday March 05, 2003 @12:23PM (#5441427) Homepage
    There are a few forums I used to frequent, one for webmasters. It was mostly freelancers or one-man shops, from what I could tell, but the forum moderators were strict to the point of being stupid over 'pricing discussions'. "We can be sued for supporting price fixing" is the standard response.

    One person asked what it was customary to charge for a certain type of service. I replied back that I've seen people charge anywhere from $50 to $1500. *THAT* was considered 'potential price fixing'. How a number with a variation of hundreds of percents could be 'fixed' is well beyond my comprehension.

    You'd think then that magazines or websites which have pricing on them (like, for example, ecommerce sites) would be collaborating in price fixing, as they can see info from other companies, and those companies can see their info, and adjust things accordingly.

    There's a difference between knowing what someone else charges and actively engaging numerous people to all sell at a particular price, but people don't seem to see the difference.
  • Amazons pricing (Score:5, Interesting)

    by Foofoobar (318279) on Wednesday March 05, 2003 @12:25PM (#5441438)
    I was a buyer at Amazon from 95-97 and helped build their buying dept and I can tell you that it is even more insidious than that. They buy straight from publishers/manufacturer when they can on almost all of the most popular items so they can get a 55-60% discount.

    And thanks to me, they get a killer deal on shipping due to a little known program known as consignment shipping via UPS so they pay less than half of what they normally would pay; though they charge you for the full price of shipping, nearly all of this money goes straight into their pocket. They now claim it is for the manpower to ship your book but I have an Uncle that works for the warehouse down in Nevada and gets paid minimum and the time it takes to fill an order is less than 3 minutes ($10/hr x 3 seconds = approx 0.75).

    Now, they then charge full price and have items that they overstocked pull up higher in searches with edited customer reviews to make them appear better than they are. True fact. They started editing reviews back when I was there.

    Oh the horror stories I could tell...

    "...people just like the feel of a dead tree in their hands." -Jeff Bezos

    Then on top of that

    • by The Ribena Kid (140177) on Wednesday March 05, 2003 @12:45PM (#5441607)
      Now, they then charge full price and have items that they overstocked pull up higher in searches with edited customer reviews to make them appear better than they are. True fact. They started editing reviews back when I was there.

      This can't be true, they don't mention anything about editting in their patent [uspto.gov] on discussing an item.

      ;-)
    • Re:Amazons pricing (Score:3, Informative)

      by TopShelf (92521)
      Charging the customer retail UPS shipping and pocketing your discount is as old as the hills! Just about every company that has decent shipping volume does this.

      Of course, your calculation of $0.75 shipping costs doesn't include the packaging (toss in another few cents) or the cost to support the distribution center - which is quite a bit, considering the technology and infrastructure it takes to turn orders around as quick as you say.
  • From the article: The spokeswoman for a telecom company said, "We're not going to talk about prices, and the fact that we're not going to talk about it is off the record. You can't use the fact that we won't talk about prices in a story."

    So he goes and prints it anyways? Can he do that?
    • Re:Journalism ethics (Score:5, Informative)

      by evilpenguin (18720) on Wednesday March 05, 2003 @12:35PM (#5441513)
      If he doesn't name the person who said it or the company for whom she works, yes. That's what "off the record" means. It doesn't mean you won't repeat it. It means you won't attribute it to the real source.
    • Re:Journalism ethics (Score:2, Interesting)

      by sphealey (2855)
      From the article: The spokeswoman for a telecom company said, "We're not going to talk about prices, and the fact that we're not going to talk about it is off the record. You can't use the fact that we won't talk about prices in a story."
      So he goes and prints it anyways? Can he do that?

      Until doing so is declared a violation of the USA Patriot Act, sure. At least at the moment in the US we still have a concept called the First Amendment. There is no legal concept of "off the record" - it is just a professional courtesy between people who make the news and those who report. All it means is, 'if you publish this I will only talk to your competition from now on'.

      For the moment anyway. It would not surprise me a bit to see organizations trying to use laws such as USA Patriot (particularly version II) to censor reporting that they don't like. But not yet.

      sPh

  • Music Industry (Score:2, Informative)

    by SiuanSanche (649696)
    I used to work at a music store, you know, one of those places that sells one damned cd for $16-$18. Anyways, I was reading online at VH1, after some searching, I found the article. What makes me sad is that people went and supported the stores involved anyways. Not sure how to make this a link, but here's the URL for that story: http://www.vh1.com/news/articles/1457874/10012002/ id_0.jhtml
  • by afidel (530433) on Wednesday March 05, 2003 @12:33PM (#5441495)
    With sites like pricewatch.com, pricescan.com, and other competitive shopping sites I know what the market price is for any goods I buy online (generally big ticket electronics items, though I have used similar methods to check large appliances), so how does anyone ever pay much more than the market price for an item that isn't unique to a single online vendor? Do people really make impulse buys online?
  • PPD (Score:2, Informative)

    by alaric187 (633477)
    Perfect price discrimination isn't new. It's just very, very hard to do. With today's technology and consumers, it's a lot easier to guess at the price that each customer will accept. For more on PPD, check any low level econ text. [amazon.com] or book on economic game theory [amazon.com]. Or check out some Mises [amazon.com]for those economically inclined poor souls who believe in the price of a good equals the amount of labor involved.
  • by antis0c (133550) on Wednesday March 05, 2003 @12:40PM (#5441562)
    I've known this for a while now. I have a small network at home, a number of Windows workstation, a few Linux workstations and a number of OpenBSD servers. What I do is look for an item on Amazon I want to buy, then go to that item on every available browser on every computer at home. Through Netscape, Mozilla, IE, Konqueror, Opera, Phoenix and Galeon. Then I complete the purchase from the cheapest one.

    It's worked very well for me. Some browsers were as much as 30 dollars more than others for larger priced items. That to me would seem like a grey area in the legal system. You aren't allowed to charge varying prices at regular stores based on the customers appearance. You'd see Walmart getting sued left and right if at the registers they charged 15% more because I was wearing a suit and tie as opposed to looking like white trash. Or charging more for black comedy DVD's if you are black, the ACLU would be all over them in a heartbeat.
    • why don't you just write a script that tells amazon it is browser X, then pull down the price?

    • You aren't allowed to charge varying prices at regular stores based on the customers appearance.

      Sure you are. You can't discriminate based on sex, race, religion, etc... but anything else is fair game. Now, I'm not saying its a good idea, but its certainly a right.
  • Customer Collusion (Score:2, Interesting)

    by travdaddy (527149)
    There are a lot of posts worrying about business collusion, but what about customer collusion? A site like PriceWatch should be able to go through a website and collect prices under different profiles.

    Then, as a customer, I might get a little annoyed knowing that a company is trying to sell me a book for $20 when I know Person X can get it for $15.
  • by idiotnot (302133) <sean@757.org> on Wednesday March 05, 2003 @12:44PM (#5441596) Homepage Journal
    That way, you never have to worry about prices.

    But seriously, objective pricing probably is gone. Why? Well, we've transitioned to a service-based economy, and it's difficult to stick a price label on an intangible product (intellectual property, anyone?).

    What makes a copy of XP Pro worth $299? Nothing. The box and the disks themselves are probably only worth a few bucks. And people know that MS runs 85% margins on these things, but still continues to buy them. And when so much of the economy is based on sales of intangibles....

    Same goes for getting work done on your car. How much money does a head gasket cost? Well, the gasket, itself, is under fifty dollars. How much does a head gasket job cost? That's a different question entirely, now isn't it?
  • by Stubtify (610318) on Wednesday March 05, 2003 @12:50PM (#5441653)
    Well the article mentions how technology is helping the businesses, but not the consumer. Yes Amazon keeps track of your past purchases, yes if I search for anything there is a list of "suggestions" on the side. Yes I may not see the same prices as you do, but all of this doesnt matter for one reason.

    I can go anywhere I want to buy anything amazon has to offer me. The internet allows me to shop around with minimal effort. "Memory sticks are $52 at amazon? Well I saw them at compusa for $42"

    I'm not worried about this because I don't shop and expect to get the lowest price unless I do some work. That amount of work has lessend with pricewatch and other deal sites, and this is where I think technology is hurting companies. Its too bad that neither article mentioned this, I would like to see how they plan on combatting it. Remember when "price matching" was all the rage?

    I mean, amazon.com's prices are usually very flexible, they flood the market with coupon codes, free shipping, and so what if they charge more to an idiot who is willing to pay it. If they notice you're only buying the things that you see as being cheapest from them they'll realize whats up or their software isn't worth jack.

  • by bhdaly (646097) on Wednesday March 05, 2003 @12:51PM (#5441667)
    "Collectively the airlines change prices 75,000 times a day". All airline customers have been trained to shop around because of this. There is no company or brand loyalty because the customer knows if they dont shop for price they WILL get screwed. Instead of focusing every cent on how to undercut every other supplier, try providing the customers with quality service at affordable and consistently affordable rates. Customers do not want to be in the price shopping business. That is a lot of work. They want a ticket at a reasonable price. If one airline gave consistently affordable rates and decent service, customers would come back to that airline with confidence instead of changing airlines everytime because of a price blip. That is not possible with the current environment where the same airline will charge you $1000 more depending on some whim from a competitor. And this is touted as science?
    • by JimBobJoe (2758) <swiftheart AT gmail DOT com> on Wednesday March 05, 2003 @03:37PM (#5443466)
      There is no company or brand loyalty because the customer knows if they dont shop for price they WILL get screwed.

      For the most part, airline service is not differentiable...though there does seem to be an observable difference between the low quality carriers and the high quality carriers on service and on-time performance. But that isn't known to your leisure travellers, who shop entirely by price, unless they have had some abnormally negative experience on carrier X. I need not tell you that everyone and their grandmother tries to book a trip somewhere, the first thing they ask about is price.

      Having said that, leisure travellers simply aren't profitable, or you need a hell of a lot of them before the flight at least breaks even. Your supersaver 21 day advance fares are a loss to the airline. (Incidentally, the consistency in airline fares come from the fact that everyone knows that fares go up the closer you are to the travel date. On a side note, the expansion of the complexity of supersaver fares is how checking for photo ID was introduced--it never had anything to do with security, it had to do with making sure that person X wasn't buying a ticket in advance that they had no intention to use, to sell to person Y who suddenly needed to go somewhere and didn't wanna pay full price.)

      Anyways interesting example of this (regrettably, the only example in my head) is the Continental 757 flight from Cleveland to London Gatwick. It's not an exception at all incidentally...but if you fill all the first class seats on this flight, you'll pay for the entire plan to London *and* back. On the other hand, you need a good 100 passengers in economy class to get same result. Therefore first class is vitally important...and airlines spend huge amounts of money trying to differentiate their first class products. And who flies first class? Business travelers who care about being on-time and the service/amenities they get. Simply, airlines can barely care about their economy class product since they lose money/only break even on the majority of seats anyway.

      I'm from Costa Rica, and my mother often flies down there to see the family. One thing that always bugged her was the fact that fares to latin america were terribly high in comparison to fares to europe, and it seems that flying to europe is a much more complex transaction, not to mention it's farther :-) . Fact is, it's very hard to sell expensive first class seats to latin america, in comparison to europe, so the airlines can only try to make a profit on economy class. Which is exactly what they do with fares that seem abnormally high for the distance traveled. (I should add that fares to latin america are some of the most stable...they barely move up or down, and we've paid the same price, within $100, 90% of the time we've gone there, for the last 20 years. Clearly it's getting slightly cheaper with time, but it's pretty stable.)

      So having said that, it only makes sense that airlines try to change prices many times per day to eek out just a little bit of profit on the economy class seats. It's the only thing they can do.

      I incidentally disagree with your comment that Customers do not want to be in the price shopping business. Customers love to price shop...especially when they are buying their ticket 3 months in advance. There is such a psychological reward in getting a good deal.

  • by sirshannon (616247) on Wednesday March 05, 2003 @12:52PM (#5441671) Homepage Journal
    I charge my customers depending on the size of the client. Huge medical conglomerates pay more (per hour and per project) than my next door neighbor or my favorite local band.

    International businesses charge Americans more than they charge someone who makes $2 a week.

    students get discounts on almost everything

    ladies get in free on Thursdays.

    etc, etc, etc...
  • by andy@petdance.com (114827) <andy@petdance.com> on Wednesday March 05, 2003 @12:52PM (#5441676) Homepage
    Am I the only one who has taken basic economics?

    It's called "discriminatory pricing", and is not at all illegal or unethical. Look at your local movie theater. Say they charge $2 for kids and $7 for adults. Why? Because they'd have a family of four pay $18 dollars, rather than that family not go at all because it's $28. 1 x $18 > 0 x $28

    Same thing with cheap night. Tuesdays, all seats are $2, because they'd rather have some people at $2/seat, rather than no people at $7/seat.

    What really baffles me is that people think they're entitled to know what goes on behind the scenes when businesses set prices, or base buying decisions on that. "They're charging $7 for shipping when it only costs then a dollar!" So what? Is the total value of getting the items to your house worth it, or isn't it?

  • by tchdab1 (164848) on Wednesday March 05, 2003 @12:54PM (#5441685) Homepage
    And no, it wasn't a pr0n site.

    11/30/1998:
    So the same computer that will
    transmit you a reminder to buy
    hamburger buns when you pick
    up the patties will raise prices
    for you as you approach the
    lettuce. If your desire for a
    lettuce purchase lags, you'll be
    stimulated by additional
    promotions designed to whet your
    appetite. The supermarket will
    be alive, and the deities that
    govern it will operate in real
    time.

  • by limekiller4 (451497) on Wednesday March 05, 2003 @12:57PM (#5441711) Homepage
    From the article [computerworld.com]:
    "Computerworld also checked the price of the Men in Black DVD today and discovered that on Netscape the quoted price was $25.97, while it cost $23.97 on Internet Explorer. After completely clearing the cache and cookie files of the PC being used, the price remained $25.97 using the Netscape browser but had risen to $27.97 with Internet Explorer. Oddly enough, people using Lynx were simply given items gratis."
  • Wal*Mart (Score:4, Informative)

    by c.derby (574103) on Wednesday March 05, 2003 @12:58PM (#5441718)
    I found this article about Wal*Mart [fortune.com] to be an interesting read. It offers insight into the pricing game from the "other end".
  • by TheNumberSix (580081) <NumberSix@simpli ... EL.com_minusfood> on Wednesday March 05, 2003 @01:08PM (#5441824)
    If the browser identifies as Safari, boost prices on anything hip or cool by 20% due to Apple-user lust for fashion and style.

    If the browser is Lynx, lower prices by 20%, they can't even afford a free-as-in-beer graphical browser!

    If the browser is Internet Exploder, blue screen thier PC and charge them a subscription just to access our web site.

    Yum, the future of price discrimination!

    Actually, this reminds me of a demographics company called Claritas that sells demographics assignment services based on where you live. (Try it for yourself here [claritas.com].)

    So now in the future can we expect people to get assigned based on their browsers and OS identification?

    Users who run Mozilla on Linux tend to have:

    Three or more pets, play video games on a hidden Windows partition they don't talk about and consume Doritos by the truckload.
  • by fname (199759) on Wednesday March 05, 2003 @01:14PM (#5441907) Journal
    For those that read the article, I think it's a shame that Coke's weather sensitive pricing model failed. If it had worked, then often a Coke would cost less (who would want to drink it on a cold day), other times it would cost more. But here's the beneficial part. Now, I bet Coke machines are a lot more likely to go empty on hot days than they are on cold days, because people buy more. Have you ever been in a situation where you would gladly pay $3.00 for a Coke/ bottle of water, if only one were available. Well, with weather sensitive (and inventory sensitive) pricing you could. Once stock gets too low, the price rises, and only the truly thirsty drink. Brilliant!

    Personally, I've paid $3+ for a bottle of water before, usually b/c I'm really thirsty and that's the only option. Now, if I'm dieing due to dehydration, it's certainly immoral to charge more than a fair/ standard price. Otherwise, let me make the decision.

    Last note on bottled drink prices. They are expensive at sporting events, airports and rock concerts. Why? Scarcity of supply, which drives up prices, increases profits, which either go to maintain the airport and line the owner's pockets;. Note that the vendor doesn't relly make a killing. The rent (and other fixed costs) that he pays reflect the fact that he can maintain very high profit margins. I have no problem with that.

    However, it makes my blood boil when I go to an event or place that charges $4+ for any sort of drink, and does not have drinking fountains available. I think it's a matter of time before some public parks decide to remove their water fountains (at some indeterminable savings), and gives the monopoly soft-drink contract to Coke or Pepsi, who then proceed to charge $1 for every drink in a public place. The park rangers/ city councilors will claim it's a win-win-win b/c 1) The city "saves" money by removing the water fountains, 2) the city is paid for giving the monopoly contract, 3) the consumers have a wider variety of drink choice! HAH!

    I'd actually be fine with the scenario if there were no monopoly contract, b/c then the pricing would likely be reasonable. Ever notice how cheap Coke is in a Coke machine when it's next to a Pepsi machine? That's why the vendor wants the monopoly contract, and why public entities should NEVER give a true monopoly soft-drink contract (i.e, monopoly contract and water fountain removal).

  • by Animats (122034) on Wednesday March 05, 2003 @01:23PM (#5442009) Homepage
    That's what the Lindows thing is all about. That One Nation under Wal-Mart [fortune.com] article says
    • What else? Well, what about Microsoft? Its margins are--can this be right?--44%, and it's sitting on $38 billion in cash. Mr. Sam would not approve. Log on to walmart.com and you'll find $199 computers powered by a fledgling Windows competitor, Lindows.
    That's the Wal-Mart position. Either Microsoft is going to have to cut their prices, margins, and profits, or Wal-Mart is going to undersell them with Lindows. It's going to be an interesting battle. The outcome may be a special low-end version of Windows for Wal-Mart.

    This is important for open source. Wal-Mart likes generic products and price competition. No one supplier gets 100% of a product category at Wal-Mart. Start thinking "Linux for Joe Sixpack".

  • ...a random number generator.
  • by pjc50 (161200) on Wednesday March 05, 2003 @01:30PM (#5442073)
    http://www.vanderbilt.edu/Law/lawreview/vol536/boy le.pdf

    James Boyle is, apart from being a very smart economist, one of the Good Guys in the copyright debate. His paper explains why price discrimination happens and some of the effects it produces.
  • The Sweet Spot (Score:3, Interesting)

    by Sloppy (14984) on Wednesday March 05, 2003 @02:04PM (#5442482) Homepage Journal
    Monroe tells a pricing story that shows how even the simplest situation can confound accepted wisdom about prices. "A company is making two versions of the same product," says Monroe. "One has a little more gold and foil on it, but they're essentially the same. One is $14.95; the other is $18.95." Not surprisingly, the $14.95 item is selling better. It's also the lower-profit product.

    "Then a competitor comes in with a third product. Again, it's essentially the same thing, but a fancier version. And it's much higher priced: $34.95."

    For our original company, asks Monroe, "what becomes the best-seller? Why, the $18.95 version, of course."

    Fascinating... this is almost exactly how I buy processors. Here I am, thinking I'm so wise to pick the best-bang-per-buck "sweet spot". But somehow after reading this, I feel like I've just been identified as a mindless sheep.
  • by F452 (97091) on Wednesday March 05, 2003 @02:26PM (#5442703) Homepage
    (This is something I saw recently in a presentation that I thought was interesting.)

    Alan is willing to write a report about something, say electronic money, if he can make $1500 on it.

    Betty is willing to pay $1000 for the report.
    Charlie is willing to pay $700 for the report.

    If Alan were to charge $700, both people would buy the report, but he wouldn't make his $1500 so he wouldn't produce it.

    How about instead, he charges:

    Betty $950
    Charlie $650

    Now both customers get a price break from what they were willing to pay, and Alan gets an additional $100. And something of value was created that otherwise might not have been. So is this a good thing?

  • Natural analog (Score:3, Insightful)

    by theCat (36907) on Wednesday March 05, 2003 @03:07PM (#5443175) Journal
    Some of this (all of it?) is borrowed from optimal foraging studies in nature; companies forage for customers, and want the most/best customers with the least effort and risk. Any animal that forages with something more than blind luck employs some kind of an optimization strategy. While is it true that the grass is always greener on the other side of the fence, it is not always true that the grass is of such superior quality as to justify the trouble/expense/risk of getting through the fence. Same applies to stalking predators.

    We are not called "consumers" for nothing. We devour things, use them up. But we expend effort in doing so, and wish to minimize that at every turn. We've all been there; you want cheaper gas, but are you willing to sit in line, idling your engine and getting no where, to get it? Someone obviously is willing to do that because otherwise there would not be a line, but their situation (maybe they have no money and are not in a hurry) is different from your own (you got places to be.)

    How do animals do this? It is the subject of a lot of study since some of the strategies would appear to require a good deal of instinct in the guise of intelligence. And the strategies can become so critical and sensitive to minor changes in input that the strategies can finally drive speciation itself. How you forage can actually shape who you are and what you look like, and even drive you into so tight a corner that you are vulnerable to extinction (take pandas for example.)

    What was interesting about this article was that the author came to much the same conclusion; pricing will drive what companies do and even how they function. Eventually, pricing strategies may create new companies that can exploit/forage across new resources or simply exploit old resources more completely. That is certainly a form of commercial speciation, with all the attendant risks and opportunities.

    Commerce used to be a generalized affair, a product of human imagination and under our (inexact) control. What happens when commerce becomes like an organism in its own right, with its own strategies for survival, where we are but the engine that drives it? And for that matter, do we then become the food source for commerce in turn?

    Trout eat their own offspring, which seems counter-Darwinian. The study of why they do that is fascinating and terrifying at the same time; they eat their young because the young can get at food resources under stones and in the reeds that the adults cannot. When the adult eats the fingerlings, they are efficiently foraging for grubs under stones that normally they would never reach. The young are like an extended feeding organ of the adults, and the advantage of eating them is just enough to outweigh the loss of life.

    Perhaps commerce, the child of our own genius, is looking at us hungrily. We work creatively to buy things and our work nourishes what used to be our child but is now our master. Unknown to us, we are in the end serving and not being served. Unless in "being served" one means served up with fries and a regular drink.
  • by twitter (104583) on Wednesday March 05, 2003 @03:19PM (#5443277) Homepage Journal
    Did anyone get the idea that fast company thought that individual price setting was a good idea? That they missed it's illegal [businesslaws.com] is not the only stupid thing about the article. Let's nit-pick:

    The neat curves and crisp laws of supply and demand, elasticity, and rational behavior that everyone learns in microeconomics class don't work in the real world.

    That's macroeconomics and it does indeed work. That's the whole problem with this aproach. To paraphrase Alan Greenspan, "laws of supply and demand are not to be conned."

    Business is at the start of a new era of pricing. This era is being shaped by a new set of insights into business strategy and human behavior, and these insights are turbocharged with software, mathematics, and rapid experimentation. The result is what might be called "scientific pricing." There is even a blossoming industry of a dozen companies that offer scientific-pricing services.

    I'll bet there are a whole pile of companies willing to charge you to piss off your customers like that. "Turbocharged" indeed, that means twisted, right? Anyone who believes charging two people different prices for the same thing will make them happy, has a serious lack of insight into human behavior. People talk and feel ripped off.

    Changes in pricing will alter every part of the economy. The way that business gets done will change, and companies will flourish or be crushed based in part on their ability to grasp and master the new science of pricing. Among those already using the new techniques are Best Buy, DHL, Ford Motor Co., the Home Depot, JC Penney, Safeway, Saks, Staples, UPS, and Winn-Dixie. General Electric, perhaps taking Jack Welch's warnings to heart, is not only working with at least two different pricing companies -- it has also invested in one.

    Send that list to fucked company. All are known for overpricing shoddy merchanise. Soon they will be known for anti-trust violations, save GE which still makes good industial wares and might be smart enough to avoid this new scheme to bilk companies. Winn-Dixie with it's silly little black punishment card is wasting money that could better be spent elsewhere, while my wife now buys groceries at WalMart.

    The oldest records of prices ever found are clay tablets with pictographic symbols found in a town known as Uruk, in what was ancient Sumer and what is now southern Iraq. These price records are from 3300 BC -- they've survived 5,300 years. The documents -- records of payment for barley and wheat, for sheep, and for beer -- are really receipts. "Uruk was a large city, at a minimum 40,000 people," says UCLA professor Robert Englund, one of the few experts on the Uruk documents. "So some of the quantities are very high -- hundreds of thousands of pounds of barley, for instance."

    OK so far.

    But here's the really remarkable thing. The earliest Uruk tablets aren't just the oldest pricing records ever found. They are the oldest examples of human writing yet discovered. In other words, when humans first took stylus to wet clay, the first thing that they were compelled to record was . . . prices.

    Bzzzzt - they recorded your generosity to the temple and other administrative stuff. What they show is a deeply rooted human desire for equal treatment and fairness. This is exactly the oposite of using electronic records in a vain atempt to foist higher prices on, "suckers".

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