The speed of price
Use of computers to set pricing could change the face of retail sales
Something fascinating happened during Black Friday. It wasn’t the mad hordes of people trampling one another for the latest electronic whizbang, and it wasn’t the dreaded story of a major retailer’s site going down, making them unable to capitalize on months of buildup, ad spends and hype ( not to mention damage to the brand).
We have entered a new era in business, and it’s one where marketing and IT come together ( and stop residing in their respective, vertical, ghettos within the organization). Gartner and other research firms say marketing departments will soon be spending more on technology than the IT department. Innovations in content resource management, enterprise resource planning, social media, cloud- based solutions, mobile platforms and more may be driving this spending spree now, but on the horizon, newer technologies like context- based engines will affect the marketing department. The bigger, more pressing issue is using technology to make money.
A different price for different people at different moments.
Last week, The New York Times ran a news item titled, Retail Frenzy: Prices on the Web Change Hourly. From the article: “Retail price wars online have entered a new era of speed and precision, creating a confusing landscape for shoppers in which prices leap and plummet on short notice. In the old days, merchants sent employees into competitors’ stores to check on pricing, and days later “sale” signs reflected new markdowns. Now, sophisticated computer programs accomplish the same goal online within hours, and even minutes.”
What happens when pricing doesn’t change hourly, but in milliseconds?
If a price changes from moment to moment it’s difficult to know what the best price was. Imagine if the price of a product was as volatile as the stock market. The New York Times piece goes on to say: “... in all, seven price changes in seven days. The unluckiest buyer paid more than triple the price that the luckiest buyer paid.” You may think this isn’t a big deal. You may think that anyone can simply hop on Twitter and ask others what they paid for a similar item, but with changes happening all the time, it would become increasingly challenging to know the best price.
It’s happening on Wall Street. It’s going to start happening to everything that you buy and sell.
Personalized pricing is one thing, high- frequency pricing is another. During a session at Google Zeitgeist this past year in Phoenix, New York Times columnist and best- selling business book author, Andrew Ross Sorkin ( Too Big To Fail), painted a harrowing financial picture of high- frequency trading compared to routine retail stock trading.
These high- frequency trading systems are the dominant force on Wall Street, using incredibly powerful computer algorithms to make decisions in milliseconds with no human intervention. In short, you ( and the best stock broker in the world) don’t stand a chance against these super- computers when it comes to generating money. So, while the current crop of price adjustments online don’t seem fair, what do you think is going to happen when these high- frequency algorithmic technologies become that much more accessible to companies?
The speed of price refers to a situation where product prices are like snowflakes. Where no two snowflakes are alike, highfrequency pricing will mean that no two prices are alike ... even for the same product. The art of retail could then devolve not into a world of dollars per square feet, but instead become a game of price optimization done in milliseconds online.
When thinking about a world where high- frequency pricing is as predominant as high- frequency trading ( again, without the assistance of any human intervention), you can’t help but wonder what kind of world we will be living in within the next five years.
There is one inevitability: high- frequency pricing is on its way.