The Christmas shopping race goes to the fleet of foot

December 4th, 2012

ThinkTech Hawaii

Christmas is a time of shopping, that we know so well, and more and more of that is online. But what puts shoppers into their customary feeding frenzy is the prospect of low prices and unbeatable bargains. More than before, those prices are being set by technology.

It’s one thing for a retailer to say we can better the next guy; bring us the best price you can find, and we’ll match it. But computer pricing is taking things way beyond that these days.

We’ve seen this before in air travel. The price you pay is not likely to be the same price the guy next to you paid. You probably don’t want to know what he paid; it would ruin your day.

More and more, retail prices are determined on dynamic factors at a given moment: if you have too much inventory you lower the price; too little and you raise it. If demand is greater, you raise the prices; if demand is less, you lower the prices.

All of that can now happen instantaneously. And consumer software can find you the best price instantaneously too. The whole process is now immediate. The best price on either side of the equation goes to he who is fleet of foot.

Prices on the web change hourly. Merchants watch each other and try to beat each other real time, every hour or every minute, a hundred times a day if you like. The computers don’t mind doing it.

It’s the ultimate free market, and could be great for a smart retailer and a great boon for a smart shopper, as never before. On the converse, the retailer who doesn’t get it can lose big time, and the shopper who is not fleet of foot, who isn’t watching the price wars, can pay multiples more.

We are in a constant state of war on computer pricing, although that is seems to be so more on the web and on the mainland than in Hawaii. Given the success certain retailers are having getting the crowds in the door, what they're learning is likely to proliferate going forward.

Retailers battle to undercut the other guy or force him out of stock. They fight not only to increase sales volume but also to create and improve better franchise as value sellers.

IT companies are writing algorithms that keep track of online and advertised prices, inventory, consumer response and a host of other indicia. All of this converts into sophisticated software that produces dog-eat-dog pricing strategies. Obviously, these change-up algorithms are highly classified secret information for any retailer.

The big retailers have had the advantage of developing this kind of software but they don’t have a lock on it. In the hands of the little guys, it can level the playing field. They can track on what the big guys do and adjust prices too.

Consumers may love this, but it can give them a headache too. They may think they’re getting the best price, but they’re never sure there won’t be a better price ten minutes later. So they have a timing problem too.

Sometimes, a clever seller holds the price steady and then waits for the whites of their eyes and drops his price at a critical market moment to show he’s the go-to guy. People respond to that.

These strategies go beyond anything we’ve seen before. It’s war with high-tech weapons – like computer trading on Wall Street. The manual pricing this country grew up on is over.

But watch out. When a retailer thinks he has the market, he’s likely to push prices back up. Just because you see a price war driving prices down, you can’t be sure that the one that was cheapest won’t raise prices back up any time.

Even with these algorithms, in the end pricing needs human affirmation, the retailer who feels the market intuitively and knows when people will open their wallets. Sometimes it’s trial and error to find the sweet spot. Sure it’s a science, but to some degree it’s still also an art.

However thrilling it may be, shopping in the Holiday Season always has its challenges. One thing to watch is whether price wars for what appear to be the same item are really for the same item. You have to check not only the price, but what you are getting for the price. And you have to make sure that breathtaking discounts are not based on inflated prices.

Yes, this year we venture out into a new web of pricing competition, finding the magic of retail going steroid on the magic of technology. Bless the web for that. Things will never be the same, literally. Is it great to be alive this Christmas, or what?

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