No more sales... ever?
Hunting for deals is a student
tradition, but what would it be like
to have something priced according
to how you value it? That is
dynamic pricing.
Darren Chapman, a professor in Fanshawe's Lawrence Kinlin School of Business, said dynamic pricing is giving the power to a business to charge whatever the consumer is willing to pay. In other words, consumer surplus.
"I might value a good at, let's say, $100, and you might value it at $80. If the firm prices it at $100, then one of us doesn't buy. But if the firm is able to extract what we're willing to pay for each product, then they're going to get the sale from both of us."
If this type of pricing becomes the norm, businesses are going to have to break an established consumer mindset of "deal surfing."
"Imagine yourself coming out of a store and you got a great deal on a product and you paid $10 for a product that was $50. You're coming out of there with a great, 'Yahoo!'" said Chapman. "So we're more apt to purchase products where we get a whole lot of consumer surplus."
This way of pricing is possible with the use of RFID, Radio Frequency Identification Technology. Dynamic pricing would be set up in a way that consumers scan each item to see their own individual price.
RFID technology can track purchase history and use that to gauge consumer spending habits and price goods accordingly. Since Chapman suggested everything will then be done in type code, prices can change up to every 15 minutes.
"RFID is just a mechanism with a chip that's embedded in our cards and so on that allows us to be identified. Once the producer or the seller knows who we are, before we buy the product, they can change the price on us. The price that actually comes up isn't on a paper sticker, it's in a form of, say, an icon that can be changed instantaneously. So the price that I see and the price that my friend sees might be totally different."
Chapman pointed out that dynamic pricing will have both positive and negative consequences for businesses. Business owners must decide whether to stay with the same pricing model, knowing that it's going to be harder to sell some of their goods, or implement a dynamic pricing model, which could generate more revenue at higher profits, but it might also mean selling fewer items.
Western University student Zach Austin is a young consumer who is worried not only for his pockets but also for others who are on a tight budget. "It's not going to be the wealthy people that (dynamic pricing) is going to affect, it's going to have an adverse impact on the people who are low socio-economic status who can't afford to just spend money on whatever the price of the food is. It's going to be those people living paycheck to paycheck who it's going to affect."
Chapman agreed that consumers will be hit hard by the change, though he suggested silver linings do exist and this change could curb our spending habits for the better.
"The consumer is ultimately going to lose a bit, but the other side is that we could also win because we may only be buying the things (we truly value). When (items) are no longer on sale, then what are our actions?"
Dynamic pricing is already being used when purchasing flight tickets, but Chapman said he sees it becoming the standard for any business within the next five to 10 years. He said it will make the cashier obsolete; instead, consumers will be walking out of the store through what could be called an "electronic curtain."
"You pick up the product, you scanned it onto your phone and then as you walk out of the store — the inventory that's in your basket gets scanned and boom, it just goes right off onto your credit card or debit card."
While no lines at the checkout may speed up a shopping trip, Austin had more worries than just his shallow pockets.
"It's just further depersonalizing. Reducing social interaction from everything we do." Ultimately he said he believes dynamic pricing will produce uncertain results. "You have to scan everything to see how much it's going to cost you and whether you can buy your milk that day."
The technology does exist, and now it's just a waiting game. Will businesses ultimately decide there are more pros than cons associated with this technology? According to Chapman we have another five years of waiting to do, at least.
Darren Chapman, a professor in Fanshawe's Lawrence Kinlin School of Business, said dynamic pricing is giving the power to a business to charge whatever the consumer is willing to pay. In other words, consumer surplus.
"I might value a good at, let's say, $100, and you might value it at $80. If the firm prices it at $100, then one of us doesn't buy. But if the firm is able to extract what we're willing to pay for each product, then they're going to get the sale from both of us."
If this type of pricing becomes the norm, businesses are going to have to break an established consumer mindset of "deal surfing."
"Imagine yourself coming out of a store and you got a great deal on a product and you paid $10 for a product that was $50. You're coming out of there with a great, 'Yahoo!'" said Chapman. "So we're more apt to purchase products where we get a whole lot of consumer surplus."
This way of pricing is possible with the use of RFID, Radio Frequency Identification Technology. Dynamic pricing would be set up in a way that consumers scan each item to see their own individual price.
RFID technology can track purchase history and use that to gauge consumer spending habits and price goods accordingly. Since Chapman suggested everything will then be done in type code, prices can change up to every 15 minutes.
"RFID is just a mechanism with a chip that's embedded in our cards and so on that allows us to be identified. Once the producer or the seller knows who we are, before we buy the product, they can change the price on us. The price that actually comes up isn't on a paper sticker, it's in a form of, say, an icon that can be changed instantaneously. So the price that I see and the price that my friend sees might be totally different."
Chapman pointed out that dynamic pricing will have both positive and negative consequences for businesses. Business owners must decide whether to stay with the same pricing model, knowing that it's going to be harder to sell some of their goods, or implement a dynamic pricing model, which could generate more revenue at higher profits, but it might also mean selling fewer items.
Western University student Zach Austin is a young consumer who is worried not only for his pockets but also for others who are on a tight budget. "It's not going to be the wealthy people that (dynamic pricing) is going to affect, it's going to have an adverse impact on the people who are low socio-economic status who can't afford to just spend money on whatever the price of the food is. It's going to be those people living paycheck to paycheck who it's going to affect."
Chapman agreed that consumers will be hit hard by the change, though he suggested silver linings do exist and this change could curb our spending habits for the better.
"The consumer is ultimately going to lose a bit, but the other side is that we could also win because we may only be buying the things (we truly value). When (items) are no longer on sale, then what are our actions?"
Dynamic pricing is already being used when purchasing flight tickets, but Chapman said he sees it becoming the standard for any business within the next five to 10 years. He said it will make the cashier obsolete; instead, consumers will be walking out of the store through what could be called an "electronic curtain."
"You pick up the product, you scanned it onto your phone and then as you walk out of the store — the inventory that's in your basket gets scanned and boom, it just goes right off onto your credit card or debit card."
While no lines at the checkout may speed up a shopping trip, Austin had more worries than just his shallow pockets.
"It's just further depersonalizing. Reducing social interaction from everything we do." Ultimately he said he believes dynamic pricing will produce uncertain results. "You have to scan everything to see how much it's going to cost you and whether you can buy your milk that day."
The technology does exist, and now it's just a waiting game. Will businesses ultimately decide there are more pros than cons associated with this technology? According to Chapman we have another five years of waiting to do, at least.
