You may not realize it, but there is a war going on over you. But not for your good looks or charm, just for your money.
Retailers adjusting prices to try to win over more customers is not new (economists have been arguing about it since at least 19121), but things are really getting crazy: Amazon changes prices on their website 80 million times a day2, and microwave prices look like this3:
Why are prices so unpredictable these days?
1) Prices among retailers can be different (based on what they know about you.)
A basic example is when you go to buy a bottle of water in a theme park or a sports game and it is $4. Were you allowed to bring in a bottle of water from a local grocery store that would have cost 50 cents? Maybe. But you forgot, and the selling institution knows from experience that you are just willing to pay enough (due to the proximity of available alternatives and the sacrifices you are willing to make to stay in “relaxed, fun” mode) for them to make max profit at $4 a bottle. Voilà! Prices are different between the theme park or sports game and the local grocery store.
2) Prices at the same retailer can be different over time (based on what they know about you.)
Happy hour. Everyone loves happy hour deals whether it is $1 oysters or $3 beers. Why do restaurants charge a cheaper price for these items at 5-7pm on a weeknight? Because 5-7pm is not typically when people want to patronize restaurants based on their consumption schedules (at least in NYC), so the willingness to pay for the same items is lower. In order to shift some of the dinner rush customers earlier or attract a whole new set of customers that have a lower dining out budget, restaurants charge less for the same goods at particular times.
3) Prices at the same retailer can be different for you in particular (based on what they know about you.)
Remember when you turned 19 and suddenly ticket prices got more expensive everywhere you went? The movie theater, the zoo, the science center (go, science!) This phenomenon is what economists call “price discrimination,” and it means that for the same good or service at the same retailer, a customer could be charged a different price based on his or her characteristics. For 19-year-olds, they figure you are an adult (for the most part) and until you are around 65, you have a higher income (for the most part) than when you were a kid and when you become a senior.
So why does this all matter now more than ever before?
Because retailers, especially e-retailers, know a lot about you. Whether it is through cookies in your browser that track your google searching behavior, or simply the time, date, and location that you made every purchase with them, (what do you think loyalty cards are for?) retailers aim to increase how much you buy from them, how frequently, and very importantly, how much you pay for the items you purchase. That’s why you get crazy pricing like this on your crazy party goods:
Given that retailers also don’t have much incentive to explain what they are doing and why, we will do our best to share what we know through this blog.
In the meantime, Paribus is designed to help ease your worries about getting a bum deal out of this price war. In fact, we want you to get the best deal you can out of this price war by identifying and executing on the biggest price refund we can find you on the goods you buy.
For access, you can sign up for our beta here.
Sources and additional resources:
1 L. Philips. The Economics of Price Discrimination. Cambridge University Press, New York, 1983
2 “Amazon’s Pricing Strategy Makes Life Miserable For The Competition” – Forbes, Nov. 20, 2014
3 “Coming Soon: Toilet Paper Priced like Airline Tickets” – WSJ, Sept 5, 2012
4 “Websites vary price, deals based on users’ information” – WSJ, Dec 24, 2012