Variable pricing gets more attention

The term sounds harmless enough: "variable pricing." The phrase implies

multiple pricing tiers, perhaps corresponding to different levels of

service or value-add. However, it really is nothing of the sort, and

another term being applied to the practice, which may be more

descriptive of reality, is "discriminatory pricing."

The practice involves using technology and e-commerce to charge

individuals different prices for the same good or service, based on that

individual's value as a customer, or potential to pay a greater amount

of money. Now as a consumer, the thought of this rankles me. When I go

to a store and buy a copy of Steven King's latest novel, I want to pay

the same amount of money the guy in front of me paid. If the clerk

looked at me, and said "You sir, in the suit and tie, you look like you

have lots of money, you didn't reserve the book ahead of time, and our

information shows that Steven King is your favorite author, so we're

going to charge you double," I would naturally be a little aggravated.

Yet, the same tactic is played by car dealers and airlines and we accept

it. And we don't complain either, when the same tactic works in reverse,

and we get discounts for being good customers.

From an e-business perspective, there may be some advantages to this

tactic. Despite the fact that it is perceived by consumers as unfair, it

is perceived by business as being more efficient, because it

accomplishes the goal of maximizing return from each customer. That is

the overriding goal of e-business technology, which seeks to gather

information about each customer, each transaction they make, what past

buying trends have been and what future purchases are likely to be.

The technology is fairly straightforward and obvious. Web log

interpreters gather information on visits, what visitors do when they

come to your web site, what they buy, and what they looked at but didn't

buy. Offer a discount if visitors complete a survey (complete with

demographic information), and you can take the information from the web

log, combine it with the demographics, and predict what each person will

buy in the future, in what quantities, and how much they would be

willing to pay. On the brick-and-mortar side, supermarkets have the

potential to do the same thing. The now-common "discount cards" most

supermarkets issue can record information about my past buying trends,

and they can sort through this data to determine how often I buy which

kind of soda pop, what color socks I prefer, and what time of day I

usually visit. Suppose then, the store has an overrun on paisley socks

and wish to send out coupons offering a dollar off two pair. The

information in their buying database would determine who they send the

coupons to - and since that's the only type of socks I ever buy, they

would then decide not to send me the coupon, because they know they can

get full price from me. Instead of offering a discount coupon to

everyone, a retailer can offer discount coupons to those that would

otherwise be less likely to buy, thereby deriving the greatest return

from every customer.

So far, these tactics haven't been widely used, despite the fact that

the technology to make it happen is widely available and comparatively

inexpensive. But as companies look for more ways to compete and to

derive greater profits out of an increasingly smaller pie, more

widespread usage of discriminatory pricing is inevitable.

This story, "Variable pricing gets more attention " was originally published by ITworld.

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Copyright © 2003 IDG Communications, Inc.

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