Fluid dynamics
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Ripping up the fixed price list can be a lucrative move, says Information Age editor Kenny MacIver.
Of course in reality, it does not happen that way. Only a few innovations ever make a really big impact, but even these take longer than expected to really change a business or an industry. When they do, it rarely plays out the way the original pioneers or analysts had expected.
The gradual adoption of variable pricing in business is a case in point. Nearly a decade ago, the whole idea created huge excitement, especially with auction technology proving to be so popular. But in the event, most businesses carried on with fixed pricing, the way they always had, just using computers to help with the detail and the scale.
But as the story May 2007's Information Age discusses, the adoption of a whole host of integrated technologies has been inexorably changing the way that goods and services are priced – even if has taken the best part of a decade to really start biting.
More and more, offers are priced dynamically – meaning they change frequently according to a number of factors, including availability, demand, profitability and, controversially, the identity and habits of the buyer. One customer we spoke to knew that she had been classified as “price insensitive and time poor” – and she knew she was paying the price every day. But she had neither the time nor the energy to change her behaviour and hence her profile. Others, in contrast, are being labelled as bargain hunters, and always offered a discount.
This is not new, of course. Retailers have always changed their prices to reflect demand, availability and sentiment, marked down their stocks as they near expiry, and even adjusted their prices for certain individuals (the phrase “I saw you coming” comes to mind). Auction houses are centuries old, and stock markets have been with us for generations.
But what is new is the extent to which dynamic or variable pricing is being applied, and the complexity and dynamism of the models and systems that are being deployed.
There is a good reason for this: it works. It is no coincidence that many of the world’s best performing companies – Wal-Mart, Tesco, Google, Norwich Union, Amazon – are cited in the article.
Over the past two years, CIOs in many businesses have been given a new mandate: help drive up revenues and margins. With that in mind, pricing may be worth a lot more attention in many businesses.
