Technology has the power to improve how we haggle with dynamic pricing

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Nicole Verkindt president of the Offset Market Exchange Inc.

I’m guilty. I admit it. I grew up in the nineties and would sometimes stay home “sick” from school just to watch The Price is Right. After completing my undergraduate business degree, with all of my complicated marketing theories and financial pricing models in hand, I entered into manufacturing – selling primarily to government. There, it was all about the price.

Our main client, the U.S. government, didn’t care much for fancy PowerPoints. It was all about the low bidder, which led us to focus on cost. It was an efficient process, which dropped the price significantly over time, forcing us to vertically integrate and innovate our processes, integrating advanced manufacturing technologies, motivated solely to compete on price. So if the U.S. government has figured out effective pricing through marketplace dynamics, why do we still see price-tags (nearly) everywhere we go as a consumer?

It was the Quakers who first declared the oldest method of pricing – haggling – immoral. In the 1870s, the founder of Macy’s, Rowland Macy, a Quaker himself, affixed price tags in his store for the first time. Until that time, price depended on how good and ambitious a haggler you were. Not only did the price tag suit his moral compass to avoid price discrimination, but it cut down on training costs for salespeople. And it stuck.

I see the price tag as an inefficient market distortion; its demise is overdue. After spending time in manufacturing, my plan was to get my MBA. Instead, I used my savings to travel to Silicon Valley and India for six weeks. I met tech leaders, software engineers and worked on a disruptive business model, which eventually became OMX, an industrial supply chain marketplace.

Blowing my savings on this trip, and my startup, prevented me from getting those three letters next to my name, but instead, it gave me an honest appreciation for the future of technology and, of course, the ability to haggle for a carpet. Five years later, the “haggler” has been replaced with algorithms better than any expert haggler from the 1800s, and they are accessible to anyone, avoiding price discrimination concerns.

Uber is one of the first mainstream examples to use surge pricing to manage supply and demand. For example, it’s raining and I’m going to be late for a meeting. Demand for Uber goes up, prices surge, more drivers join the marketplace, increasing supply, and price drops again to meet demand. Beautiful, isn’t it? The visual I have when I think about centrally managed markets is lining up. It’s like going out for New Year’s Eve and trying to get a taxi, right? Low supply (what drivers want to work that night?) and high demand will do that to you if the price is set.

However, Uber is not a great example of true dynamic pricing. Uber essentially assigns a premium to a base price, and consumers find that offensive. However, behavioural economists believe that getting a new price quote every time you purchase something will become second nature. Like airline travel now versus during the regulation era.

Many new jobs created in 2016 were associated with the “gig economy.” Like a musician booking gigs, the new economy will be driven by online marketplaces of supply and demand for various products and services, allowing the self-employed supply side to make its own rules when it comes to what work it will take, when, and at what price. Pricing will be dynamic and in real time again, but not discriminatory.

We have a lot to learn about dynamic pricing: dynamic toll pricing to manage traffic and optimize the road infrastructure; dynamic pricing on the consumer side so as not to create artificial markets, especially when you consider fast-changing currencies. I think a lot about dynamic pricing in the industrial space. How can we make manufacturing sectors more efficient by leveraging dynamic pricing in a supply chain? We are entering the golden age of the networks of networks, and connection directly from the shop floor to the top floor.

Technology should no longer be considered a sector, but instead a key competitive advantage for all sectors. Technology has the ability to bring back a better form of haggling. I’m all for it.

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  • Macy’s Inc
  • Updated May 5 4:00 PM EDT. Delayed by at least 15 minutes.

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