It used to be that the price was the price.
Sure, there were sales, special offers and discounts galore. But there wasn’t a different deal for each consumer. And the price didn’t constantly shift, based on supply and demand.
But combine consumer data and speed-of-light technology, and that’s what you get.
Every day, Atlanta-based Post Properties sets rent for 22,000 of its apartment units nationwide.
In determining the price, the company’s software collects data about competitors, the supply of apartments and consumer demand, along with the usual factors such as amenities, view, location and size.
“It takes all the emotions out of pricing,” said Laura J. VanLoh, senior vice president of apartment management.
The airlines were the first industry to use technology in this way. Software lets companies make predictions about demand and set prices accordingly. Now the model is spreading to hotels, car rentals, cruise lines, grocery stores, theme parks, energy providers and online retail, as well as apartments.
For consumers, it can cut either way.
Sometimes the software raises prices: Last-minute customers at rental car companies can expect to pay full freight. Sometimes it lowers prices, like when a retailer just wants to clear out inventory for the next season’s dresses.
Find each customer’s price and you can probably sell everything you have, said Robert G. Cross, who decades ago helped Delta Air Lines develop its pricing system. Cross is now CEO of Atlanta-based Revenue Analytics, which he founded to advise companies on revenue management.
“There are people who would pay more,” he said. “There are people who would buy more if the price was lower.” That is, a company can keep some prices high for customers who can’t be flexible. It can lower other prices to lure discount-hunters and shed unsold inventory.
On a plane, you may sit next to someone who paid a dramatically different price. In an apartment building, you may live next to someone paying a very different rent.
Is that unfair? Not if you are getting what you want, Cross said.
If you care about price, you can shop around. And if price isn’t your priority, you can pay more to get what you want.
“It is ultimately the consumer’s choice, but you do have to lay out the options for them,” said Cross.
What has worked for airlines can be applied all over.
Haircutting, for instance.
Each stylist’s time is a perishable commodity, said Bill Kotrba, who brought revenue management to Regis Corp. “There may be some commission aspects, too, but we are paying stylists whether they are cutting hair or not.”
So Regis, which owns nearly 10,000 hair salons, sometimes offers a lower price when demand is slack, or it offers coupon discounts meant to shift demand away from busy times.
In short, the world is racing toward ever-more-flexible pricing, with an individual’s behavior increasingly part of the equation, said Jeffrey Hu, professor of management at the Georgia Institute of Technology. “The future will be personalized.
“Companies are analyzing your transaction history and figuring out how to target you based on your history. This is good – for savvy consumers. If you are not paying attention, you’ll get a higher price.”
Eventually, in the mall, a computer could “see” the phones of passers-by and decide which customer will get a lower price, Hu said. “It could be that there are consumers standing next to you and that those people get a discount and I don’t.”
The idea of discriminatory pricing – different prices for different customers – has been around for a long time. There have long been discounts for veterans, students, senior citizens and members of various organizations. Bars have long understood the idea – rewarding regulars with freebies, offering cheap drinks at happy hour, and charging women less on ladies’ night. But technology turns up the juice on the notion.
Theoretically, software can track and identify a potential buyer, look up his past purchases, perhaps even link to his credit rating, Facebook posts, age and income – then make a pretty decent guess about how much he’ll pay for a product.
So far, companies aren’t going that far, but there have been pricing practices that use other factors – like which Internet sites consumers are logging on to.
A Wall Street Journal investigation last year showed that several big retailers, including Staples and Home Depot, tailored online prices based on the consumer’s location. For Home Depot, prices were linked to whatever store the consumer chose, officials said.
Polls show that consumers tend to dislike seeing different prices. And certainly some similar practices in the past have backfired.
Victoria’s Secret got a public relations black eye for setting different prices in different ZIP codes, Hu said. They were found out when a customer with two accounts noticed the difference. Amazon got burned years ago when it tried offering lower prices to new buyers while existing customers paid more, he said.
Some ideas don’t fly – like charging someone based on race, gender, age or ethnic identity.
But there are ways to finesse even those obstacles. For example, discounts for members of AARP are fine, even if charging based on age would not be. And giving coupons to preferred customers is not seen as unfair, the way that lower prices might, Hu said.