In a follow up to the last posting on trying to figure out the lowest price for phone service in Chicago and other wonders of differencial pricing… Today’s New York Times happens to have an article about using expensive software systems to decide how to price products at department stores. Playing that game, the article reports, can raise gross margins 10%. Clearly you’ll be run out of buisiness if you don’t play the differencial pricing game and your competitors do.
There are numerous down sides of these kinds of games. Buyers percieve them as unfair. They causes customers to delay their purchase decisions, convinced that if they play the shopping game longer they will get a better price. It tends to make the sales process lousy: vendors that bundle a lot of service into the sale get punished. Shoppers go to them first. Collect the high quality pre-sale service, and then leave and buy someplace else. Sometimes this can lead to an industry working to get the practice regulated – some people call that price-fixing.
The software that is trying to figure out what to charge you for the hotel room, airline ticket, or college education are all looking for signals from the buyer that can be used to estimate what you are willing to pay. Private schools, public housing, etc. just go ahead and have you hand over your tax returns. Other merchants may poll your credit rating. The hotel booking software takes note of the time of day when you call. Department stores, about a decade ago, started adjusting prices thru-out the day so that I can get a shirt cheap if either I drop in at 8am on a tuesday or I’m willing to drive to an ‘outlet mall’ in a neighboring state on a saturday.
This search for signals from the buyer about his ‘hidden price’ leads to this kind profiling being called prejudicial pricing.
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