More on Insane Pricing \”Wars\”

Once again, we’ve got even better disruptive technology tools, among what seems like a never-ending stream of them. If the almighty consumers figured they were cleverly outwitting and being disruptive to retailers by so-called “showrooming” (going to the store for information/education, then scanning bar codes to find a better price elsewhere), they’re about to get their comeuppance from two disruptive strategies on the retailers’ side. In fact, the whole enchilada around pricing and discounting is getting so complex and chaotic that it may very well drive both consumers and retailers over the “sanity cliff.” And, once over the edge, the pricing and discounting madness will likely continue between them all the way to the bottom. And, just what does “bottom” mean? It’s in the eye of the beholder.

So, now, with a couple of new tools, retailers are able to flip showrooming and become “showroom-ors,” for both their competitors and customers.

“Dynamic Pricing” or “Whac-A-Mole?”

Algorithm: the word itself conjures up some geeky, techno-mathematical wizardry in a world that, I, for one, have no clue about. Yet, algorithms are being used as one of the more popular tools for retailers to outwit competitors and consumers alike in the pricing “wars.” The most prevalent practice is among giants Amazon, Walmart, Target, Best Buy, Buy.com and Sears, and also in the more commoditized product categories in electronics, games, printers, cameras, TV’s and appliances.

Called “dynamic pricing,” retailers can “showroom” the “cloud” and learn how their competitors are pricing specific items and then automatically change their prices accordingly, in nano-seconds. Remember the good old days when retailers would send employees to competitors’ stores to check pricing, and days later put their own “sale” signs up? Now companies like Feedvisor and Mercent, use sophisticated computer programs and algorithmic tools, the same used for 80% of all stock market transactions, and are able to drive automatic price changes in a matter of seconds. Think “cyber wars” in real time.

And, if everybody’s using it, how crazy do you think it can get? Like “Whac-a-Mole,” you lower your price to beat your competitor, and a second later, another competitor-based program pops up with yet another even lower price.

For example, as reported in the New York Times recently, Amazon offered a discounted price of $49.96 on a popular Xbox game the day before Thanksgiving, which was priced the same as Walmart, and three cents lower than Target. Then the real pricing “wars” began. “Amazon dropped its price on the game Dance Central 3 to $24.99 on Thanksgiving Day, which was then matched by Best Buy’s ‘doorbuster’ special, and went to $15 — once Walmart offered the game at a lower price. Amazon then brought the price up, then down, down even further, then up and up again – in all, seven price changes in seven days. The unluckiest buyer paid more than triple the price that the luckiest buyer paid.” Other examples of this opportunistic pricing strategy were tracked finding, in many cases, that the “nano-second” changing of prices often involved merely cents off between competitors.

So, watch out all you savvy showrooming consumers. Forge on and research a Best Buy store on pricing, and get an education from one of their “geeks” on one of their popular devices; scan the barcode; and then find it cheaper at Amazon. But, what happens when you order from Amazon, only to find that Best Buy now has an even lower price? Ha Ha to you!

Personalized Pricing

And, here’s another tool providing some advantage for retailers over the almighty, demanding consumer. As I said, retailers are now able to “showroom” consumers, first to find out where they are living, down to zip code, what their income range is likely to be, then to determine geographically how near or far access to competitor might be. With this information, Staples and Home Depot, among others for example, are able to determine the best prices for specific niche consumer groups.

In a study conducted by the Wall Street Journal simulating 20 visits to Staples.com, from each of the 42,000 plus U.S. zip codes, testing the price of a Swingline stapler in each of 10 zip codes for over 1000 different products, they found that prices varied for about a third of the products with as many as three different prices for individual items. Higher prices were found 86% of the time in zip codes where a Staples store was located but was a long distance from a competitive store. Likewise, zip codes that were farther than 20 miles from a Staples store had higher prices 67% of the time, whereas if a Staples store was within 20 miles of a competitor, higher prices were used only 12% of the time.

Double Whammy on The Consumer

But Watch Out for The Boomerang

Think about this. We are on the edge of “abracadabra pricing,” now you see it, now you don’t. With the dynamic duo of re-pricing every couple seconds, based on the competitive wars, and personalized pricing, based on what the so-called “traffic will bear” (also, able to change every second), this could create a negative synergy that might very well “boomerang” back in the face of retail.

“Now you see it, now you don’t” works in magic. The trick’s very illusion may confuse the audience, but it’s supposed to. And, it results in an even greater respect for the magician, enough so that the audience wants to return.

Well, I know some retailers who believe they’re magicians, (and some magicians that believe they are retailers – won’t go there). And, they may believe precision, “personalized,” and optimal pricing is finally achievable, even as a defense against consumers’ showrooming and other price-tracking tricks they employ.

But, guys, wake up! Think of the end game here. You’re not in Vegas performing magic tricks where the customer expects to be confused. This pricing magic plays out in their pocketbooks, and ultimately they do not want to be confused. If they see one price now, and in the flash of the eye, they see a different price, yours is a trick they will not be awed by. Yours is a trick they will feel tricked by, and they will not return.

At the end of the day, it’s going to be all about trust. And, to that point, “fair and square” pricing has a future.

Who said that?