Will you pay more for those shoes before 7 p.m.? Would the price tag be different if you lived in the suburbs? Standard prices and simple discounts are giving way to far more exotic and elaborate strategies, designed to extract every last dollar from the consumer. As Christmas approached in 2015, the price of pumpkin-pie spice went wild. It didn’t soar, nor did it crash. It just started fluctuating between two states. Amazon’s price for a one-ounce jar was either $4.49 or $8.99, depending on when you looked. Nearly a year later, as Thanksgiving 2016 approached, the price again began bouncing back and forth between two different points, this time $3.36 and $4.69.
We live in the age of the variable airfare, the surge-priced ride, the pay-what-you-want Radiohead album, and other novel price developments. But what was this? Some bizarre computer glitch? More like a deliberate glitch, it seems. “It’s most likely a strategy to get more data and test the right price.”
The right price, the one that will extract the most profit from consumers, has become the fixation of a large number of economists. These sorts of price experiments have become a routine part of finding that right price, because the right price can change by the day or even by the hour. Amazon claims its price changes are not attempts to gather data on customers’ spending habits, but rather to give shoppers the lowest price out there.
In buying a seasonal pie ingredient, you might be participating in a carefully designed social-science experiment. But this is what online comparison shopping has brought about. Simply put: Our ability to know the price of anything, anytime, anywhere, has given us, the consumers, so much power that retailers—in a desperate effort to regain the upper hand, or at least avoid extinction—are now fighting back.
They are comparison shopping us. They have ample means to do so: the immense data trail you leave behind whenever you place something in your online shopping cart or swipe your rewards card at a store register. Top economists and data scientists are capable of turning this information into useful price strategies.
“I don’t think anyone could have predicted how sophisticated these algorithms have become. The price of a can of soda in a vending machine can now vary with the temperature outside. The price of the headphones Google recommends may depend on how budget-conscious your web history shows you to be. For shoppers, that means price—not the one offered to you right now, but the one offered to you 20 minutes from now, or the one offered to me, or to your neighbor—may become an increasingly unknowable thing. “Long ago, there used to be one price for something. Which raises a bigger question: Could the internet, whose transparency was supposed to empower consumers, be doing the opposite?
If the marketplace was a war between buyers and sellers, then price was a truce. And the practice of setting a fixed price for a good or a service—which took hold in the 1860s—meant, in effect, an end to the perpetual state of hostility known as haggling. As in any truce, each party surrendered something in this bargain. Buyers were forced to accept, or not accept, the one price offered by the price tag. What retailers gave up—the ability to exploit customers’ varying willingness to pay—was arguably greater, as the extra money some people would have paid could no longer be captured as profit. But they made the bargain anyway, for a combination of moral and practical reasons.
Macy’s had a store policy of “One price to all; no favoritism.” Other merchants saw the practical benefits of this. As they staffed up their new department stores, it was expensive to train hundreds of clerks in the art of haggling. Fixed prices offered a measure of predictability to bookkeeping, sped up the sales process, and made possible the proliferation of printed retail ads highlighting a given price for a given good.
Customers, meanwhile, could recover some of their lost control by clipping coupons—their chance to get a deal denied to casual shoppers. The new supermarket chains of the 1940s made coupons a staple of American life. What the big grocers knew—and what behavioral economists would later prove in detail—is that while consumers liked the assurance the truce provided (that they would not be fleeced), they also retained the instinct to best their neighbors.
The idea that there was a legitimate “list price,” and that consumers would occasionally be offered a discount on this price—these were the terms of the truce. And the truce remained largely intact up to the turn of the present century. The reigning retail superpower, Walmart, enforced “everyday low prices” that did not shift around. But in the 1990s, the internet began to erode the terms of the long peace. Savvy consumers could visit a Best Buy to eyeball merchandise they intended to buy elsewhere for a cheaper price, an exercise that became known as “showrooming.” In 1999, a Seattle-based digital bookseller called Amazon.com started expanding into a huge marketplace of its own. The era of internet retailing had arrived, and with it, the resumption of hostilities.