Check out this graphic from a Wall Street Journal blog (Real-time Price Changes: The Story of a Dust Pan, Sep 5):
That is the price of a dustpan (specifically, Rubbermaid’s Duster-Dustpan set) on Amazon from 5:10 pm on Aug. 24th and 8:50 pm on Aug. 25. Why does it move so much? Software! A different Journal article reports that sellers on Amazon are using pricing software to relentlessly tweak their price as they jockey to be the lowest price on the web (Coming Soon: Toilet Paper Priced Like Airline Tickets, Sep 5). Here is the eye candy that goes with that article:
So this is certainly a fascinating development. The scale at which is this going across dust pans and microwaves is rather remarkable.
Mercent Corp., the company that provides the software used by Cookie’s, says it changes the price of two million products an hour. Mercent says it makes price decision based on a variety of factors such as competitors’ prices, competitors’ shipping prices, manufacturer price restrictions and seasonal sales. Retailers pick their settings to determine how frequently prices are adjusted, which products are tracked and which competing websites are ignored.
The most frequent changes are for consumer electronics, clothing, shoes, jewelry and household staples like detergent and razor blades.
“The long-term implication is that a price is no longer a price,” said Eric Best, chief executive of Mercent, which tracks prices for more than 400 brands.
So why are dust pans different from flights between New York and LA? The article points to one factor: These are completely interchangeable goods. With airline seats, one traveler may prefer Delta to United because of their frequent flyer status while another finds the time of the United flight more convenient. That would seem to put more emphasis on seller ratings. Presumably some buyers would pay two cents more if one seller has a near perfect rating reported from a large number of buyers while another has a spottier record.
I see three other significant differences between merchants on Amazon and airlines. First, with the exception of the big boys like Sears, Best Buy, and Amazon itself, these are small sellers and not terribly sophisticated. They are relying on third-party software and are following general rules of thumb. One retailer experimenting or hell-bent on being the lowest could introduce a lot of variability into the market.
A second point is that these retailers can be selling multiple products that are not inter-related the way airline flights can be. They are then less constrained in pricing their whole product line. For example, whoever is selling that dustpan probably is also selling full-size brooms. These are complementary goods and if you are moving into your first apartment, you need both but many buyers are looking at these separately. Contrast that with an airline offering a flight from Boston to Chicago. How they price that leg may impact the decision of travelers going from Boston to LA if the airline offers connections in Chicago.
A related issue is that if the retailers are generally small, they likely don’t carry very much inventory. Moving one or two dust pans may be all it takes to wipe out the available stock. An airline may offer only a few seats on a flight at a discounted price but it could choose to offer more on the same flight or on one at different time of the day.
A final observation. Most people hate airline pricing if only because the outrageous fares at Christmas is always more salient than the cheap flight one lucked into in September. In this setting, customers may be more likely to win as long as retailers focus on winning any sale as opposed to trying to find the right person to sell to.