In a week with the usual litany of bad news for brick-and-mortar retailers, The Atlantic offers an in-depth look at one of online sellers' biggest advantages--data-driven dynamic pricing. It's a tactic familiar to anyone who has watched items in their basket change price over the course of a day (or an hour)--but traditional retailers are starting to get in the game, too.
As writer Jerry Useem recounts, fixed pricing is itself a fairly new, and particularly American, innovation. Before retailers including Macy's started advertising fixed prices in the 1860s, haggling was the default. It was the best way for sellers to find out the slightly different price each buyer was willing to pay for a product. Fixed pricing--leavened with price hierarchies and a dizzying array of discounts--came to be seen as both more ethical, and easier to manage as retailers expanded.
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But the growth of big data, especially from tracking buyer behavior online, has in a sense made haggling scaleable. Useem describes the evolution of dynamic pricing since the mid-1990s--"eBay was Disneyland," says one economist who studied consumer habits there. Online, possible tactics include tracking buyers' spending habits, then suggesting more expensive products to more free-spending customers--or even, as did the instinctive hagglers of old, just offering them a higher price and seeing if they bite.
Useem takes a closer look at Boomerang Commerce, a five-year-old startup that specializes in algorithmic pricing for traditional retail. Rather than leading an automated race to the bottom, Boomerang's tools push retailers into the realm of game theory and psychology--anticipating what competitors' responses to their moves will be, and how shoppers will perceive them. One tactic is to focus on low pricing for certain anchor products that have a broader impact on how customers think about an entire store--while letting the prices of other items go up.
Not surprisingly, some shoppers find the thought of all these shifting prices unfair, invasive, or just plain exhausting. One retailer, the clothier Everlane, is hoping to keep customers happy with transparent pricing that reveals items' cost of production, and changes prices based on it.
But the more likely endgame is somewhat darker. Retailers, over time, will likely figure out how to give buyers the price that makes them feel the most like they’ve gotten a deal--even if they really haven't.
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