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The coming retail apocalypse: some axioms

Many years ago (we're talking about the late 1980s) I spent a year and a half as a shop manager. Well, that and a retail pharmacist running a pharmacy: but in addition to dispensing prescriptions, a chunk of retail management came into the picture. (The 24-year-old Charlie really sucked as a retail manager. I would not hire him. Luckily both stores were parts of small local chains with competent management backup—even if one of them was owned outright by a very happy junkie—and in any event made up most of their turnover via prescriptions. At which I merely sucked somewhat.)

Walking around various British cities over the past couple of years I've noticed an increasing number of vacant shop fronts (some in prime retail situations). I've also noticed a disturbing loss of diversity in our high streets, as quirky local shops give way to cookie-cutter national chains. I have, like most people, had the frustrating experience of trying to work out whether my mobile phone contract or the airline flight I'm been booking is actually the cheapest one that meets my needs, or whether I'm being gouged by a computer somewhere. And so I'm trying to put the pieces of the jigsaw together because I'm interested in guessing what our retail experience is going to look like in 10 years' time—the traditional "if this goes on ..." exercise beloved of science fiction writers.

Which leads me via the following chain of logic to a hypothesis about the future of retail. Starting in this blog entry with some abstract propositions about the forces that are going to shape retail over the next decade. (In the next blog entry: what this means for your retail environment.)

1. The internet is a communication tool that tends to disintermediate supply and demand.

—That is, it makes it easy for consumers to find whatever they're looking for.

2. Search tools exist that permit direct comparisons between competing offerings.

—First-generation search/comparison tools look for numerical data to base comparisons on. Price is the most accessible numerical data. So price is what gets presented to consumers first.

—Available evidence suggests that the majority of consumers consider price to be the most important aspect of any buying decision (if the goods on offer are equivalent[1], or there is economic stress). Note for example the 23% drop in organic food sales since 2008 in the UK, corresponding to the banking crisis and subsequent recession.

—More recently we've seen comparison sites with customer ratings to supply metadata about, for example, supplier reliability: but these tread dangerously close to defamation in some cases: see for example the class action lawsuit against Yelp (alleging extortion: dismissed, but shows the shape of things to come). Price comparisons are relatively safe.

3. It follows that, in the long term, the internet tends to induce pure price-driven competition between rival suppliers.

—This reduces profit margins both to intermediaries (the supply chain) and to producers.

4. Price fixing cartels (and government-mandated fixed prices) are illegal, and this prohibition has been globalized via international treaty law.

—So suppliers are trapped in a race to the bottom, unless (a) they can find some clear value-added proposition to attract consumers other than low price, or (b) they can work out a way to reduce price transparency in order to impair the accuracy of consumers' pricing decisions.

—luxury goods and designer brands adopt strategy (a). Some other well-known organizations go this way, too: Apple is an obvious example in the consumer electronics sector. (Underlying Apple's value proposition is simplicity: a simple, easy to understand product range, pared-back industrial design, "easy to use". Also underlying their success is "easy to fix": if it goes wrong you take it to the Genius Bar and it will be fixed. Or, for a fee, they'll uplift it and fix it for you.) But what about strategy (b)?

5. Algorithmic pricing of airline tickets has been around for decades. Flights are scheduled up to a year in advance, between known end-points, with a well-known number of seats in each class. So why are there so many airline ticket types, and why do prices for a given ticket type on a given route vary depending on when you book them? The answer is that airlines have an incentive to ensure that there is a paying fare in every seat, but they also have an incentive to not discount seats if they can possibly sell them at a higher fare. So they've developed complex pricing algorithms that balance supply and demand internally and offer potential customers the highest spot price that the airline thinks the market will bear. More recently, mobile phone companies, cable TV companies, and other service suppliers offer us the "freedom" to build our own package of services, but the underlying pricing information is highly opaque.

—For example: cell tariffs include a set number of minutes per month to certain other types of phone. Non-inclusive minutes and text messages, and internet data are charged at a rate that varies depending on the price of the tariff selected, so that to identify which tariff is cheapest for a given customer it is necessary to work out their average inclusive and non-inclusive usage pattern and then use a spreadsheet. And comparisons between different cellcos are even harder because the basic components of a package may be defined differently.

—Alternatively, cable TV packages usually contain a mixture of channels that cut horizontally across different specialities, so that if you have a specific interest you will need to pay for the most expensive package on offer if you want to see all the channels covering that area.

—Because of the difficulty of navigating such complex pricing schemes, the majority of customers end up over-paying for services such as phone tariffs, airline tickets, and utilities.

6. Because of price competition, internet shopping is eating into the retail sector. High street retailers need to maintain expensive high street retail outlets; internet suppliers do not. In general the cost of delivery/fulfilment can be outsourced to the customer, or offset against the (higher) cost of operating retail premises. (Tesco et al wouldn't offer internet shopping and delivery services if it wasn't profitable to do so.)

—Price competition in retail is therefore an incentive for retailers to look for other means of sustaining profits.

7. How far can algorithmic pricing be pushed into the retail sector?

—Use of loyalty cards gives retailers huge volumes of data about individual customer purchasing habits. And CPU cycles are cheap. The bait on the hook is discounts on some products, or special offers available only to cardholders. These offers aren't free: if you use a loyalty card, the offers are your payment for surrendering a chunk of your privacy.

—Of course, online retailers like amazon get this information by default. (And compliance with local data protection laws often leads to a privacy "race to the bottom" in consequence.)

—I note that many personal computers are solid on a build-to-order basis: retail stores only supply a basic range (retail floor space is expensive) but offer the option of choosing accessories and spec on a machine that will then be delivered direct to the customer, or for collection. (This is similar to the way automobiles are traditionally sold, but pushes down the price floor for such a system by 1-2 orders of magnitude.)

—Cost of laptops may be dependent on the spot price of various components purchased in bulk (for example, RAM, hard disk, screen). Is it reasonable for consumer electronics vendors to therefore offer algorithmic pricing on their products? (For example, "the spot price of wholesale DRAM is trending down this week, so if you order your new laptop before Friday we'll give you a £7.52 credit towards the optional 4Gb memory upgrade! Hurry now! Offer ends Friday!")

—Other physical goods' cost of production may vary with other dependencies, e.g. fuel costs, plagues affecting crops, civil unrest/industrial action, floods hitting industrial parks in Thailand, etc.

8. I expect that we're probably going to see algorithmic pricing extended down the retail chain to include products that would normally only see that kind of trading on futures markets. Is it reasonable for a supermarket to offer customers futures deals? "We notice you bought 76Kg of potatoes last year. Currently potatoes cost £1/Kg, but the cost of fuel may cause this to rise, or there might be a famine. Would you like to pay us £80 by direct debit at 80p/week instead for a guarantee of up to 80Kg of potatoes with nothing extra to pay for the next year? For an extra 20p/week, we'll insure you against a potato famine driving prices up to £3/Kg for the next 100Kg you buy!"

—We've already seen some signs of this on (with prices on offer to different customers varying for the same product, presumably on the basis of the customer's willingness to pay more for goods in prior transactions)

—Legal justification from the retailers would be "we're simply making an offer to sell at a unique price to this particular customer—what's your problem with it?" (The difference being that by putting a price sign on a rack of oranges in a supermarket, the supermarket is making the same offer to sell to everyone who walks past the rack.)

—The flip side is: it'd mean the end of transparent retail pricing, and a whole raft of new predatory practices coming in. (If you earn 50% more than average you can expect your grocery prices to begin creeping up, because your suppliers can infer what's in your wallet).

How far can algorithmic pricing be extended? And what are the long-term implications if, in 10 years' time, the only way you can check the price of an item in a store is to point your camerphone at it—and the price will be tailored specifically to you and not available to anyone else?

(Part two of this prognostication will follow, when I feel like writing it up.)

[1] Obviously not all "goods" are equivalent. Books, for example, aren't always substitutable; a novel by Hannu Rajaniemi or Karl Schroeder might be an acceptable substitute for one by C. Stross, but a novel by Nora Roberts or a cookbook by Mrs Beeton most certainly isn't. And some superficially different goods may be substitutable depending on context; a return flight from EDI-AMS for a business meeting isn't substitutable for a return ticket EDI-CDG, but if the goal is a weekend vacation in a European capital city with tourist attractions it might be.



There comes a time with price opacity when the consumer just gives up and doesn't buy at all. Or at least, it does with some consumers: I have certainly indefinitely deferred some purchases on the basic principle that I don't have time right now to work out what the best deal actually is.

And that's the issue: it seems somehow immoral, somehow belittling, if I accept something that could possibly be considered second best. I suspect that's why so many people pile into the iPhone or Nike shoes or Ugg boots or whatever, on the 'ten million $foos can't be wrong' basis. Yet, this 'best' deal will frequently value my research time at zero.

As a contrast: for our AussieCon 4 trip, I went on the 'net, and worked out which airline I wanted, and which flights. I then went to a travel agency and told them where I wanted to fly, on which days, and please to come up with an itinerary, any airline. They came up with the same flights I had. They got my custom — their commission effectively came out of the fact they get slightly better wholesale pricing — I had peace of mind.


And following which - yes, for people on higher income, they will see what they pay drifting up. But part of that is them learning to value their time: this has always been the case. Also, part of this shows in the convenience store round the corner tending to be more expensive than the out-of-town supermarket that you have to get in a car and spend time driving to.


I actually just did that spreadsheet thing to decide which smartphone contract is best (and found that contracts with hardwsre included for reduced prices actually woulf cost me dxyctly the same over two years than contracts without subsidized hardware, and buying the phone itself).

But the point for my comment is another one: consumers are not stupid, so what is the reaction on algorithmic pricing? One thing could be forming buying networks/coops (virtually, flexible, informal) to increase buying power in the moment of sale. The other thing that comes to mind are smartphones, price DBs and barcode scanning apps like barcoo - enabling consumers to compare prices (and qualitative data) just-in-time.

Bringing both together we get smartphone enabled social buying clubs.


4(b) is used, or so it appears - utilities are currently in the UK government's line of fire for being particularly opaque. Mobile phone billing isn't there yet - but is equally opaque. Airline surcharges are coming under scrutiny too, along with "excessive handling charges" for paying by credit card.

More Or Less (A Radio 4 show about numbers and statistics) did a thing about loss-leaders in supermarkets. It's a model that might not work well in other circumstances, and can be bad if you have the time to shop around, but we tend to shop in places that have as loss leaders things we want to buy, which overall lets all the supermarkets offer refunds if you can buy cheaper elsewhere and not break the law. Classic for opaque pricing and relying on time pressure.

And although your initial premise for 4 is accurate - it is illegal to fix prices in cartels and the like - it's not all that uncommon. I don't make a particular point of following business news but it seems like most years I hear of 3-6 cases of "anti-competitive pricing" that make the main news headlines. Even if none of them lead to successful prosecutions (unlikely it seems to me) breaking the law to increase profits, or skirting really close to doing so seems like it's fairly common.


I like the idea in principle. I wonder if it will ever work. How successful is car-pooling for example, where it's just sharing a trip to and from work with one or more colleagues that live near you? Pooled shopping... cheaper but do you want the neighbours to know what you buy?


There are some items that I am still conditioned to buy after inspection, specially foodstuffs and clothes. However I suspect the new generations that are used to seeing limited items of good appeareance in the supermarket shelves, or now their size in each of their favourite brands, will make the transition to buying unseen goods more easily.


Second the negatives on opacity. When we moved we were looking at various cable packages. I wanted a news channel in my native language and my wife had a few wishes of her own. We spent some time poring over pamphlets and package matrices, and realized that we'd need to basically get everything in order to get what we wanted. So we got nothing instead.


The last non-chain shop I can remember buying anything from is the local corner shop for milk and suchlike. Even then, (a) all the corner shops seem to have the same suppliers (or supplier) (b) the price premium over the supermarket is swingeing.

Anything that can be pirated, will be - BitTorrent is already the current method of alleviating the cable problem. How long to home 3D printers? I could do better than a lot of the shite at my local Homebase (notorious for pound-shop quality at full prices).

Grocery buying online in the UK is somewhat susceptible to direct price comparison on really highly comparable goods. We get our stuff on for example.


4B is the oldest trick out there on ebay, you can pay $10 for an item, plus fine print of $1 shipping, or you buy the identical product for 50% off, only $5, with fine print that shipping and handling is $15.

"the only way you can check the price of an item in a store is to point your camerphone at it—and the price will be tailored specifically to you and not available to anyone else"

Response: I'll never buy anything again, at least not in the "free market". In the black market, that's a whole nother issue, and the black market will consist of the richest half of the population which is an interesting change. Also my retired mother-in-law on a miniscule pension will oddly enough buy enormous quantities of food which will be sold / traded / bartered to me and other well off younger people. I'm not sure this is entirely a bad thing; this deeply socially integrates retired people and poor people into the rest of society, and gives them something profitable to do with their time. Imagine how expensive it would be to move and live somewhere new without any elderly relatives or poor friends.

This will give the tax evasion people a fit, because my income tax return will show at least 1/3 of my income just "disappears" meanwhile retired / poor people, if they make the mistake of purchasing food with something other than (my) cash, will have some explaining to do WRT their declared income being a fraction of their total credit card purchases and payments.

You could probably write a good book with these themes that I would probably buy... Err, I mean I certainly would not pay $30 for it, but my mother-in-law would probably buy the identical book for $10 cash acting as my unofficial purchasing agent.


NB: I'd like to remind folks that while I'm trying to diagnose trends, I am not necessarily in favour of them. Just sayin'.


Wait, I remember that when Amazon tried to give different prices to different customers based on their previous sells it resulted in an outcry. So, are they doing that again?


Re 8 - you're looking at more of a flexiforward than a future, due to the open delivery period (and presumably regular partial drawdown). And then an option on top... Sigh. I don't think it's unreasonable to give everyone access to hedging instruments, but I can now see my career ending in madness writing a pricing and risk management framework for Tescos Structured Root Vegetable Product desk.


This already happens to some extent - my last-but-one laptop was bought with my younger brother's student discount and we split the difference.


I was really hoping for more on the the future of the high street as well as retail. Is it really going to end up being chain coffee shops, hairdressers, estate agents and charity shops?

Which retailers actively demand location?


Let's see. I have two hundred channels on my cable, and all I watch is the History Channel, ESPN 1 and 2, and the Scifi Channel, with occasional trips to other venues. But I pay for all of them because I haven't the choice, unless I want to have a bunch of trees cut down so the satellite dish can lock on the flippin broadcaster in the sky. And I agree that the mega-retailers are destroying the little guy. I lived in a town in Alabama that was next to a town that begged the Worlds Largest Retailer to come in. The retailer already had two stores within ten miles, but agreed to come and built a Supercenter in the middle of the small town. Within six months every other business in the town, with the exception of fast food, had gone out of business. No more family businesses supporting multiple families. Everyone in the town working for slightly more than minimum wage. I think it's sad that I drive around Tallahassee, not a small town, not a big city, and see so many empty storefronts, while at the same time new buildings constructed specifically for mega-retailer spring up like mushrooms.


First comments on Charlie's original post .... 1. Except that, you cannot "browse" for unexpected itmes on the .net, they way one can in secondhand bookshops, for instance. 4. Oh yeah? Try that in buying Electricity or Gas - or if you want to change supplier because the one you've got are stupid shits, the example being EDF promoting the vile, fascist "olympics" for instance..... The prices just HAPPEN to be so close as to be not worth bothering to change. Ditto mobile-phone supply - especially where they deliberately make it very difficult to compare prices, even inside the suppier you already have. I note Chalie has already spotted the opaque-pricing trick. An alternative srategy is BETTER SERVICE - it really does matter - see Charlie's comments several threads back on customer service? 5. More of the same - mobile phones - yes. And you try and get a "cable" (optical) connection that DOES NOT HAVE TV - you can't. They just don't exist. 6/7. Except, some of us refuse to have "loyalty cards" since the personal data collected will be used in intrusive manner - no thanks. Whay can't the bastards just give a discount, and scrap the card-schemes AND the computer geeks ripping us all off? (oops, did I just say that?) Also competing DRAM products - eg Apple/Amazon(kindle)/Vox - you can realistically only buy one - which one - and trying to look forward in time to determine the best choice. It's a re-run of VHS/Betamax, isn't it?

  • Quote: with prices on offer to different customers varying for the same product... This may be illegal and criminal - Amazon should be prosecuted if they have done this in the UK, on the same site. I've just been told this area is a real mine-field.
  • Charlie's emboldened actual question presumes no change in the law.

    I have an important suggestion to make. Individual pricing, tailored to individual customers needs banning before it gets off the ground.

    Hint: Write to your MP - now (?)

    bellinghman @ 1 YES - I've done this - that's why I'm still with my old-fashioned, button-only basic mobile. I really can't be arsed with the deliberate complications.

    d. dandridge @ 15 Precisely. Just don't go there ....


    Perhaps software vendors will offer applications for smartphones which track prices across users and stores and at least partly defeat some of the schemes. Probably for a small subscription fee. :-)


    On point #1 about the Internet being a disintermediating force between supply and demand, I think you also have to take into account that the Internet is a disaggregator of demand. Most of microeconomics is based on the assumption of markets with large numbers of buyers and sellers all engaging in transactions for a single good or set of near substitutes and gradually settling on a market-clearing equilibrium price point that allows both buyers and sellers to attain some surplus benefit from the transaction. The internet collapses the demand side of the equations to a single buyer who has no opportunity to seek the equilibrium price and who then ends up with no surplus value (and therefore no point to making the transaction).

    One of the mechanisms for this is that the internet isn't a broadcast channel and there's no reason to believe (given modern data collection and content delivery capabilities) that the price I'm being shown for a given good or service is the same as the price you're being shown.


    Historical point, I've jsut remembered. All "prices" are what is called an "offer to treat". Technically, one can always haggle - though, presently, very few places will actually permit this. Antique shops, and bookshops are probably the exceptions. There's a reason for this. In the distant (medieval) past, ALL prices were arrived at by haggling. Until the invention of a "fixed-price" ticket, to save time and congestion at a particuar very crowded and busy location. The idea caught on VERY rapidly, after the first year or so of the then-new-&-experimental system. Where and when? Old London Bridge, sometime in the early 1500's (I do have the date somewhere...)

    Is what Charlie is wondering about might be presaging a return to the old system, where everything is haggled for - with the itermediation of the 'net as a price-guide. Interesting times, in the Chinese sense.


    I'm another one who basically responds to the whole issue of "I can't figure out where best to spend my money on $FOO" by just not spending the money at all. In my case, it's largely driven by a reaction to having been on a very low income (Australian unemployment benefits) for the better part of the past two years, and to still having a largely constrained income stream now (my partner is currently working for an employer who consistently underpays their entire staff). If I can't figure out what a good price is, I'll tend to presume I don't need the item.


    Complexity discourages purchases, and greatly discourages purchases if a much simpler alternative is around. This is at the heart of Apple's retail and iTunes strategy for instance (though they are somewhat drifting away from it in iTunes now). It's at the heart of Louis CK's recent success with direct-sale experiment as well. I'm sure there are plenty of other examples as well.

    People tend to hate ISPs, cable companies, mobile operators, credit card companies, insurers, airlines, and the rest who engage in opaque pricing. They are only tolerated because you typically do not have to deal with them too frequently.

    You're probably right that more retail companies will try to go down this path, because it will look particularly attractive to many MBAdiots, but this will not see long-term success. If anything, I suspect the trend will be to greater simplicity. Complicated, big ticket items will be transparent and differentiated. Non-differentiable basics (e.g. toilet paper, milk) will collapse to a few dominant options per price category. And for things in the middle – things about which one cares about, but not always knows/cares to know exactly what one wants – there will be subscription services delivering an interesting selection of things from more obscure sources (without the ultimate consumer actually having to go through the trouble of finding, pricing, and sourcing them).


    5. Algorithmic pricing of airline tickets has been around for decades... So they've developed complex pricing algorithms that balance supply and demand internally and offer potential customers the highest spot price that the airline thinks the market will bear. More recently, mobile phone companies, cable TV companies, and other service suppliers offer us the "freedom" to build our own package of services, but the underlying pricing information is highly opaque.
    Algorithmic pricing and its predecessors -- yield management, markdown management, dynamic pricing, revenue management -- are a rather successful example of Schneier's "security through obscurity". Probably fewer people know how to use apply these concepts at an advanced level than how to price exotic derivatives, and probably by at least an order of magnitude. There's a tremendous first-mover effect, most of the development is in-house, and the opacity of the systems make them increasingly difficult to reverse-engineer.

    What makes them work, from a classical microeconomic viewpoint, is that the items in question aren't tradables -- e.g., swapping airline tickets is a no-no -- and thus the "Law of One Price" doesn't apply, let alone a Eugene Fama-style efficient market. It's the flip-side of personalization and product differentiation.

    But what that means is, it's unlikely to apply to very close substitutes. There are ways around this, of course. We saw this in embryo with the development of branding strategies in the last century -- a relatively cheap method to differentiate closely related products (though how much of the gain goes to maintain the brand in the long run, I leave as an exercise for the reader). Part of the business impetus behind the organic/locavore trend in the United States is to differentiate types of foodstuffs that were previously presented rather generically.

    It's a consequence of consumers developing more discriminatory tastes. And we'll pay for the privilege.


    Somewhat adjacent to your point, but at least until recently supermarkets were operating home delivery services at a loss.

    Brand maintenance, and an intention to expand their online range where what kept them at it.


    I think point 2 might balance some of the later points – if pricing turns opaque enough, then reintermediation might happen, with comparison sites such as Yelp becoming even more important.

    I also wouldn't underestimate the importance of social factors – not just price comparisons, but also customer reviews, automatic recommendations and so on.

    Purchasing can obviously also be done with algorithms, either by a single consumer or by a whole network of them. (It could be argued that Yelp and Groupon is already doing that to some extent.) Also with the potential for crazy interactions between competing algorithms like Amazon's $23 million book or the 2010 Flash Crash.


    In my limited experience, algorithmic pricing seems most prevalent in airline tickets and hotel rooms.

    Both seats and rooms, once unsold for a day are unrecoverable.

    At the other end of the spectrum, we've got things like books or bottles of wine. Neither are particularly age sensitive and there are more wines released onto the world market annually than any normal person could possibly taste in a lifetime. I suspect it's also true with books. More are published in a year than any normal human could read in a lifetime. And with music, television and probably movies as well if you consider foreign-language films.

    For these kinds of products, algorithmic pricing does not seem all that beneficial. In fact, for this class of goods, the thing the consumer needs more than anything else is a sommelier. A trusted guide with strong domain knowledge.

    This is why it's worth going to a good bookstore like Powell's in Portland or Common Good Books in St. Paul. Because when we browse our favorite section, we find books we'll like because they have domain experts winnowing the overwhelming selection in a helpful way.

    This is also why going to Barnes & Noble stinks. There's no good selection going on from my perspective. Just row after row consisting 99% of crap. So in this sense, the well-run High Street retailer (if I understand your UK idiom here) has an advantage over the big-box retailers in the suburbs and the Amazon's on-line.

    There's also a niche for a sommelier on-line to recommend products in any overwhelming choice category. A guy I know does exactly this with eye-glasses and he was netting a reasonable profit monthly from referral revenue.


    Will political/economic boundaries continue to play a role? I recently wanted to purchase a pocket knife made by a particular French cutler. I can see lots of web sites selling the knife in the EU, but only a single source in the USA. Currency exchange, shipping costs, and shipping time means that it is very, very difficult for the EU websites to compete with the more local one, even though they are all more-or-less anonymous mail order retailers.


    I wonder if manufacturers will have enough political clout to repeal the laws against vertical price-fixing, so that Dell can say to Amazon and Best Buy “you must sell this laptop for no less than $500” and let them compete with each other on customer service.


    This post scared me especially the tailored pricing concept. I think we need people to post the prices they are paying for things online and then we can compare. So as usual information and transparency is the key, even if we have to go around the establishment.


    4b is done via frequent sales and coupons. Your "list price" is almost never the actual price, since you are always running sales or giving out coupons. You can also build a loyal customer base this way, but getting them to sign up for your loyalty card, mailing list, credit card, etc.

    One of the chains in the US that does this is Express. Their clothing is basically a somewhat higher quality version of H&M, at 2 or 3 times the price. However, they are constantly sending out coupons for things like $30 off a $60 purchase, a blanket 15% off. If you have their credit card, you also get points for your purchases that are redeemed for gift cards. Or they might do a sale where you get $25 off coupons for every $50 you spend, to be used with your next purchase.

    So any price comparisons would be inaccurate, because their pricing information is false. Most customers are paying between 15% and 50% less that the list price at any given them.


    I know you're not an economist, Charlie, but what you're talking about with "algorithmic pricing" is partially information disparity coupled with price discrimination. The first tends to decrease competition, while the second increases it. So without splitting these two issues apart (if it's even possible), you can't say whether algorithmic pricing is good for customers or bad.


    Oh, and shouldn't this be called an axiopocalypse?


    There's nothing stopping Amazon (et al.) from showing different prices to different people, no. There's also nothing stopping me from making a tool which logs the prices which different people see. However, I don't think that's useful at this point given the current state of adaptive pricing.

    Amazon mainly uses adaptive pricing for optimization, i.e. to test what prices get the best results. This is also mainly useful for high-traffic items. They'll show price A to (say) 500 people and price B to a different 500 while attempting to account for known demographics. The price then settles at whatever price gave the best cumulative return.

    The internet makes it extremely problematic to maintain hidden information over a large transaction volume. Cases like airline travel and hospitality have some insulation from this, but even that is deteriorating. Consumers rarely accept many additional layers of abstraction with physical goods, so multiple redundant distribution channels will tend to settle at the lowest sustainable margin without collusion. Note that such collusion is usually implicit ("I'm not going to significantly undercut my competitors, and if I do it will be on a temporary sale") rather than overt ("Let's all agree to sell it for $X), so margins do tend to float somewhat higher without generating sufficient grounds for a legal complaint.

  • As a writer you are aware at the cellular level that your time is money. At some point you will conclude that spending more time looking for the "best" deal is not economically useful, so at that point you will choose what seems the best deal so far and go with that. We all make the same calculation, subject to personal prejudices and our own feeling of self-worth (in the economic sense.) Keep in mind that we are expert rationalizers of our behavior. :) Sooner or later we'll give up and either just buy the damn thing or not. Sellers know that.

  • Sooner or later, given enough data, most of us will develop an understanding of the kinds of behavioral algorithms sellers use and will begin finding ways of maximizing their value to us. People are pretty good at spotting patterns and finding ways to defeat them, when there's an incentive. It's a hunting skill and we haven't lost it.

  • I think that we really are seeing the 'death of retail', at least in the context of competitors to large chain operations. But I also think that the pendulum continues to swing and that smart people will continue to find an ecosystem that boutiques can survive in. Not every purchase decision devolves to the lowest price. By their nature, optimizing economic supply chains removes flexibility of offerings as well as making them more fragile and less tolerant of disruption. Individual consumers are not quite that standardized and often make less than optimum economic decisions (if more economists recognized this, economics might begin moving out of the witch-doctor stage of development.) This is fertile ground for those who can find ways of offering value and differentiation other than price.

  • 34:

    isn't there a 4c - offer a very bespoke/ niche/ unique service / product ( says the freelance Roman tile specialist)? I was also wondering if there is a trend towards more economic literacy and self employment so that people can put a cost to there time? so you can go for an informed choice based on convenince, simplicity and speed as opposed to spending time shopping around. I am reminded of our attempt to book a family holiday (me wifr and toddler) to visit relatives in canada. usually book online but with a 2 year old in tow we went to the village travel agents. the coop was useless - the agent just did what we had done and trawl the web, whilst we were there, and found nothing cheaper and recommended via san fransisco with a 6 hr stop over - so practicle with a toddler! the other shop, not a main chain, phoned up the airlines and got everything sorted for us for less and with proper insurance (which paid!). guess where we go and trust, and where we dont bother to go nowadays


    I don't have a link, but I thought Amazon got swatted for that 'different prices for different customers' behavior and had to agree to quit it. It went against US law somehow (I thought). I suppose it's possible that same law doesn't hold in the UK.


    "Price fixing cartels (and government-mandated fixed prices) are illegal, and this prohibition has been globalized via international treaty law."

    Except they continue to operate in the face of fines from governments. Visa/MasterCard don't seem to have changed their ways, telcos in France were slapped with fines a few years ago, but can't see any visible difference, and after 3 years of investigations only now are companies implicated in the French cleaning/household product cartel being fined. Again, whether or not behaviour will change is another matter.


    Random thoughts whilst digesting the implications:

    I expect a more concerted attack to be made on cash soon. I understand that in some US states it is tricky to take out more than 1000 dollars because of anti-money laundering issues, and of course we have the example of the black market all over the world. Thus if you make cash illegal, it means (at least in the heads of the control freaks) that you can track people's income and expenditure thus reducing drug dealing, black market work and tax avoidance.

    Just how much would it cost a company to implement all this pricing to consumer stuff? I can imagine a medium sized one going bankrupt as it's outsourced IT project managers fuck up and things get priced wrongly or it simply costs too much to set up and run effectively.


    I'd like to suggest a secondary cause of problems on the High Street:


    Really. Or, at least, by analogy "really."

    Perhaps a little bit of a current US bankruptcy will help explain things a bit. As readers of this blog are probably aware, Borders — the No 2 US trade bookstore chain — declared bankruptcy earlier this year and is being liquidated. Although the final figures are not in, the preliminary distribution figures are both disturbing and fascinating. * In the real world, all creditors publishers are going to get between 10% and 11% of their claims. * If one removes the forward-looking landlord claims (that is, if there are fifteen years remaining on the lease, the claim is for that entire fifteen years of rent, under the presumption that the landlord will be unable to release the property), that figure balloons to about 32%. * If one goes further back and sets back rents back to rents at the time given stores were initially located, that figure goes well over 40%... and allows enough cashflow that bankruptcy would not have been necessary in the first place.

    The "Tokyo" problem is the linkage between rents (using the term in all three of its economic senses) and the presumption of steadily increasing land values for land that is not changing hands. In the instance of the High Street, most of the underlying freeholds change hands a couple of times a century or so, but the rents are constantly increasing despite the constant cost basis. The reference to "Tokyo" concerns the 1980s and 1990s real estate bubble in Tokyo; in 1989, for example, if one deconflicted the accounting, the approximately 40km2 of central Tokyo was valued at more than the nonpublic lands of the state of California... and Oregon. This, in turn, was used to "secure" financing for interlocked-directorate corporations.

    My point is that there seems to be an expectation of constantly increasing returns from real property that is not supported by actual constantly increasing cost basis on those real property investments — and high-street rents for shoppes are just one reflection of that. This was a particular problem for Borders because the corporation leased only the land itself, and not the building (well, it's more complicated than that, but that's the basic model), so the landlord couldn't even claim the necessity of repairs to the building as a steadily increasing cost basis. I hesitate to think what Hatchard's in Ipswich might be like today; the news that Foyle's is leaving its iconic location in London for a new, purpose-built building just reinforces the issue.

    The less said about the historical relationship of leaseholds, property values, entailment, and seisin, the better... but then, I actually lived on a frankelmoyne (lands appurtenant to a historic abbey) for a while when I live in Blighty, so I had incentive to start understanding the estates in land (and their economic expectations and basis) long before law school.


    One method of price opacity has been used by the big box electronics retailers -- especially the warehouse stores such as Costco, Sam's Club, etc. -- they get the producers of goods to create custom SKUs -- it might have an extra GB of RAM, or a slower RPM on the HD... just something to make it not the same as the one sold at the other bigboxen. A DSLR is bundled with an extra lens for an extra $80, the Wii comes with an additional game, etc. etc.

    This works less well on commodities, obviously, although I have seen DVDs with "Best Buy Exclusive Content".

    A relatively novel concept I've signed on to watch, but haven't bought from yet is OpenSky. They offer relatively unusual products (not the commodities you see everywhere, but not bespoke), "curated" by celebrity experts on food, fashion, etc. It's a small number of boutique items, with a few items "on sale" each day. This is interesting, and if it's working for them, I'm happy, but I'm concerned that it scales poorly: How many curators do you need to reach a milliAmazon of sales?

    Lastly, there's house brands: Again Costco and Sam's Club are big proponents of this, because it's not going to show up on anyone else's search... but who searches Google for "Kirkland brand frozen shrimp"? It helps keep customers loyal if your brand has quality, but it doesn't attract new consumers easily. Sears has been bitten by this badly: Their long-term brands such as Craftsman and Kenmore are now available in other stores, and there's no reason to go to Sears any more (Sears just announced store closings based on lackluster holiday sales... how'd that happen?).

    Employment impact: fewer retail jobs, more delivery and warehouse pick-n-pack. Probably the biggest hurt, and most of the damage already done, is the small businessman who plunked down a life savings on a franchise store only to see that well dry up. There are no equivalents to that in internet retail.

    So what's left out there for a small businessman? Services. You can't have a haircut shipped to your house overnight.


    And then again, this whole scheme has to be more energy efficient than say, a down-to-earth programme where the supplier only has fresh produce and cuts out Nestlé, Kraft et al. or a store where I can get everything that I need information related, like Apple TV will be or just more efficient in the whole than not participating into the consumerism. I feel like the older generation cuts itself off from this almost daily comparison stress and just chooses the simplest item on the shelf. That may be the iThingie now in computing or not eating at home and just paying somebody to cook. The younger will do whatever is more efficient. And paying more just because you earn more will not be tolerated. At least not without a truckload of marketing.


    the future is now, in other parts of the world, say Orange County, California, where you drive for many miles and see a pattern of franchise operations and big stores. The little guy closed shop a decade ago and is now the proud manager of Costco.

    Physical stores will be dominated by large chains etc., whereas the smaller operations will find more traction online, which will also become increasingly competitive.


    Really interesting topic. Some thoughts on your first 3 points:

  • The internet is a communication tool that tends to disintermediate supply and demand.
  • --- Not really: Search results are based on Google algorithms that include search terms paid for by manufacturers/advertisers.

  • Search tools exist that permit direct comparisons between competing offerings.
  • --— Again, not really – see 1 above. Plus there’s considerable variation in how individuals conduct their searches. Also, if you have a lot of search history in your browser cache that search history might also be used to help ‘clarify’ the search. There might be some neutral, third-party apps that I'm unaware of ... but even these can probably be over-ridden by Google.

    --- Agree that “Price is the most accessible numerical data”. However, depending on your search history, ‘brand’ might trump price if your browsing history and the Google algorithm tell it to.

    —Available evidence suggests that the majority of consumers consider price to be the most important aspect of any buying decision (if the goods on offer are equivalent[1], or there is economic stress).

    –-- Agree for routine, low involvement (i.e., not emotionally loaded) products. Other products/usages will have different buying criteria. For example, anything to do with ‘work’ – simple/easy to use is typically the key purchase criterion. And, you’d be surprised at what these two categories might encompass. Although price is often offered as the #1 reason when asked how consumers choose between brands, statistical analyses of purchase behavior often show price as having only middling importance. (Also, "price" itself often encompasses several different aspects of varying importance.)

    —More recently we've seen comparison sites with customer ratings to supply metadata about, for example, supplier reliability:

    --- These can be so easily manipulated that I’d really be very careful of the reported results. Of the online customer ratings that I’ve seen it’s been obvious that some “customer feedback” was provided by the store owner, sales rep, some especially irate customers, etc. Consider that probably most if not all of these comparison sites have no built-in QA process to ensure that the ‘customers’ are who they say they are or to restrict the number of times any individual can post. (Because some small retailers, especially restaurants in my part of the world, rely on this online word-of-mouth, there’s what appears to be a cottage industry showing up for manipulating this type of “customer feedback”.)


    Given the way laws are enforced, they may not need to change for this to happen. It could easily happen through just re-interpreting (slightly) what they mean in the favor of large companies. (Which is an already on-going process.)

    I've already seen black turn into white more than once. Most recently in the US Supreme Court decision that corporations a fully people, and thus can't be limited in how much they spend to buy an election. No laws were changed, but existing laws were wildly a manner distinctly unfavorable to the citizenry.


    The idea of obscuring price information makes sense from the seller's perspective. From the buyers, though, we should expect computer programs (digital PAs) that sift through all this data and give us a smaller list of options.

    Also, there will be some people who are too poor to buy smartphones, but can't be cut out of the market entirely ("Foodcorp exec says 'Let the Phoneless Starve" is not good PR). There will need to be traditional markets that put physical price tags on their merchandise. What's to stop smartphone users from bargain-hunting at such places?


    I wonder what makes you assume that lower income individuals will see lower prices. High income individuals would probably see the lowest prices for the most basic goods (even if they buy them, it won't matter that much) while presumably low income individuals would and could be charged extra for such basic goods, while high quality goods could be offered to them at lower prices without running the risk that they might buy too much of them.

    This way a retailer could create the impression to its costumers that either they are not as poor as they think and extort the highest possible prices out of them (as they have no choice anyway) ... (for richer individuals) that they are in a much more privileged position than they actually are, selectively inducing them to shy away from the "cheap crap" for the masses, because they are in a position to afford to do so.

    The most important prices to your sales are the prices of the things you don't sell, except for situations in which there is no choice anyway.


    I agree, to some extent about the relatively poor experience of shopping online compared to shopping in a shop, at least when browsing and making relaxed choices. My latest shopping "trip" for a book was all online because I wanted a very specific book right then, and right then was about 11pm so the shops were shut.

    Amazon tries with the "customers who bought this also bought this" section to recommend in a way a book store might. My impression is that they fail badly - but I accept I'm an abnormal member of society in many ways, so it might work in general.

    Someone, eventually, will work out an online shopping experience that is pleasantly similar to browsing in a bookshop to buy books online. Maybe a button so when you're in a hurry for book A you can search efficiently, when you're in a mood to browse you can browse instead. Choices like displaying all the books in a series in order please!

    At least one of the supermarkets in the UK seems to be doing something like this - they arrange their choices in "aisles" so you can go to the dairy aisle, drill down to milk, cheese, yoghurt etc. and then see the choices within that section to make your choices. It doesn't exactly replicate the shopping experience but it's close.

    Add to that an Ocadao style "normal shopping list" that you can just hit "deliver all of this again" and then easily edit if needed, very nice all round.


    @tp1024: We assume that because it's a bedrock assumption of basic microeconomics.


    Although my understanding is that the (usually only) supermarket in many poor districts usually charges more for the same items than if you can afford to have a car and drive to the big box store.


    That's not actually true, medieval prices were not always reached by haggling. Frequently town authorities put in maximum or minimum prices in order to ensure survival of the traders or to prevent overcharging by the traders.

    On the topic in general - this just reinforces my idea that we'll end up with a 2 system economy, with a formal one and informal one.


    Another thing that happened to Sears is that some of their house brands degraded in quality. This caused me, at least, to stop valuing the name. I was later told that I had "mistakenly bought the cheap end of the line". Sorry, if I can't trust "Craftsman" to mean good quality, then I don't trust the manufacturer. I can't be bothered figuring out each sub-line separately. It was much easier to just stop considering Sears a place to buy quality tools.

    My presumption is that some manager decided to "monetize" the value of the trademark by putting it on a line of tools of inferior quality, while preserving it by having a line of high quality tools. But there are too many lines of tools, and the only trademark readily noticeable was Craftsman, so that's the name that got devalued.

    So I doubt that the problem is that Sears trademark lines started getting sold in other stores, so much as that they devalued their own trademarks.


    Daniel, (a) smartphones are going to hit 50% of the mobile phone base within 2 years and near-enough 100% within 5 years. (b) Mobile phone ownership in the UK is around 120% of population. (70 million accounts for 61 million human beings. Two years ago.) Finally, as is usually the case ... yes, there will be shops with static pricing in tickets on shelves. They will be exploiting the poor, and the elderly, and the mentally impaired. And they will do so by charging over the odds. Being poor is expensive.


    Maybe I'm weird, but I don't think I'm the only one -- I like chain stores and dislike small one-off shops. I know what to expect at the large stores, I know what they'll carry, I know what their policies are, I know in general what their prices are like. Small stores are a mystery.

    Apart from restaurants I can't remember the last small shop I patronized. Unless you count the sellers on Etsy, I guess.


    I was just thinking that the more frustrating and feeling-like-I'm-probably-being-{ripped-off} normal retail sales get, the greater the relative value of 3D printing---feedstock prices are less likely to be obscured, as you can at least track their bulk prices....


    I wouldn't put it that way for me. I would rather say that large chain stores are easier if you are new to the area or in a hurry because they have a predictable pile of most things you are likely to need in an easy to find location within the store, often the same layout across the entire chain.

    By contrast small local shops are more confusing and it is harder to find what you want. But if I am staying in an area I will spend more time shopping in them because they aren't the chain stores.


    "Let's see. I have two hundred channels on my cable..." I have a lot more than that at :-) A basic Virgin 20Mb/s package and all my infotech needs are met


    Interestingly, it is once again profitable to put together your own PC. At one time it wasn't, and people like Dell would do it cheaper. That's not the case now. My last PC cost me around £600 in parts. The nearest similar spec machine retailed for a couple of hundred higher


    the net and new devices will further reduce diversity. people are reluctant to buy anywhere but at the sites they know. things like friends list, reputation systems and last but not least device lock-in increase the problem. If a game isn't on steam, a book not on amazon, an app not approved on the apple app-store ... for a lot of people it might just as well not exist.


    Perhaps I can offer an insiders view? I work in Operations Development for the general merchandising internet arm of a major supermarket. Of course all of these are my own opinions and do not reflect upon my employer in any way... Honest.

    That said, algorithmic pricing is simply not on the agenda. The big trends are around the race to the bottom for what you might call "commodity" SKUs as well as the increasing removal of margin around the big hits (e.g. Harry Potter DVDs and Apple's iPhone).

    The perception by the retailing gurus and big thinkers seems to be the following: - Algorithmic pricing doesn't help overall margins for physical goods. It works for services, but not for items that don't change. The supply chain has its own logic. People can work around the blockage. It partially works for mobile phone consumers because of the perceived time pressure people feel as they reach the end of their contract terms... If they were willing to wait and shop around the carriers would find themselves struggling to engineer higher ARPUs very quickly - as it is, they have had to respond to pressure to offer savvy consumers an alternative through SIM-only deals. The exception for algorithmic pricing's failure is smash-hit product launches (think sneak peek early access or exclusive extras etc.). See my comment on Amazon below. - Shops will exist, alongside their web address. Purchasing and the supply chain will be fundamentally set-up to orient around digital, with some or the majority of stock also sold locally. Think of it as re-selling the goods that have already been "sold" (internally) to the shop premises. Bulk sales, like groceries, will still superficially be unchanged - except the store manager or an algorithm will be purchasing the local stock through the same web-oriented supply chain that you do for home delivery, just in huge volume. - "Showrooms" (like Apple's stores) will be increasingly used for anything with a premium margin. - Amazon's genius is in moving us from here to there faster than the rest of the industry van compete with them. They've got a headstart and are doggedly maintaining the pace. Jeff Bezos' genius is in realising this and not sitting back and allowing shareholder concerns about profit margin to slow his pace. He currently sucks all the profit out of each sector by selling smash hits at or near cost, while keeping a huge long-tail which he can sell for a profit. That is brutal to compete with, but won't last forever. In the meantime, expect more retailers and e-tailers to die. - Everything will be "bricks and clicks". This is the pain felt in the high-street now as inferior web offerings are holding back slow moving traditional retailers from defending their positions. In the UK, Amazon is hoovering up 10% of their turnover and all of their hits (Harry Potter et al.) without their high cost-base. This is killing most retailers, but just like the full-service airlines finally worked out how to live with the low-cost carriers, retail will solve their problems - after a huge number of bankruptcies. Amazon is trying to outrun the rest of retailing providing a good-enough service to eliminate purchase-by-post's inherent drawbacks. That won't last forever. - There will be a split into roughly three types of retailing non-perishable products. 1. Lowest common denominator SKUs. Think Tesco's "Value" range swallowing everything. Sales for all of these kinds of products just grow and grow. The quality is just about good enough and the price is simply low enough to avoid worrying the customer into comparison shopping or making an effort. If one supermarket sells their toaster for £0.30 less than another, then it's going to cost you more in fuel to shop around than to simply go with the convenient choice. That said, there is a concerted trend into reduce the number of SKUs because the margins are near zero. Watch for the number of branded ranges reducing in every shop you visit. In the end, ordinary shops will sell a full range of basic, dirt-cheap products, but nearly all no-name own-branded with a smattering of more expensive (to cover their intensive marketing costs) branded alternatives and all just about good-enough quality. As an example, look at the habits of the newly created "consumer" class in China. The number of brands and manufacturers are shrinking rapidly worldwide - see the car industry for a guide to the final number of survivors after the shakeout. 2. Apple and their ilk. Premium products where they look after you, you buy into their vision and you don't ever ever get a discount. Of course, that doesn't mean the product won't be low-priced - look at how Apple make about £150 profit on each iPad when everyone else can't make a profit at all on equivalently priced devices... Shops for these products are more oriented around being customer service centres with training, support, warranty handling and such taking equal emphasis to sales. 3. The wild-card middle market. This will entirely replace the middle-market now (i.e. good quality, reliability, more features but no cachet from an exclusive brand). No-one is sure what this will be but my personal opinion is you'll see some of what our esteemed host mentions here - mass customisation for a personalised price. Think of a TV where you can order extra HDMI ports and drop the unwanted aerial socket, in the colour, size and shape you want, with fitting and installation. You kinda-sorta see this starting now with the huge explosion of SKUs in most middle-market brands. Price can vary by all kinds of factors, not least delivery speed and service extras. This seems to be the intention of the internet arms of the major upper-middle retailers in the UK who are in a dire position between brands taking more and more of the margin and customer service relationship away towards themselves through direct sales and marketing and the rush to the bottom on all normal/basic products. 3D printing fits nicely here, because you are going to want to go to the showroom/customer service centre for your region to make this special purchase - and that supports a local workshop to run up your individualised order quickly. Or repair it... That's not coming soon and there's a painful transition to be had first.

    There are some items that I am still conditioned to buy after inspection, specially foodstuffs and clothes.

    Two generations ago (in the US, more recently in the UK, I believe) shoppers were used to buying meat and fish one-on-one from a butcher even in chain stores. The product was shelved unwrapped, and the butcher pulled the specific cuts indicated by the shopper and wrapped them. Then one large chain introduced pre-wrapped meat (initially, it was wrapped in brown paper, this was before the large-scale introduction of plastic film wrappers) that was shelved in large displays and picked directly by the shopper. The cost savings for the store were very large, but the initial reaction of the store's competition was that customers wouldn't accept not being able to closely examine the product. Between transparent film wrapping and the part of the cost savings the store put into price reductions the change was successful, and the competition was forced to follow suit.

    This little fable tells us several things:

  • Customers are, in the main, willing to change their buying habits if given some benefit.
  • Large retailers are often highly conservative with respect to both their pricing strategies and their marketing policies.
  • The first in to a strategy often determines its later evolution.
  • HIgh street retailers (and the equivalent small businesses in the US) are under attack from chains in increasing numbers of product and service areas. Haircuts for example are now sold by chain outlets ("Super Cuts" is one such around here; it's not good, but it's cheap). And some retail product and service retailers are buying into franchise "store-within-a-store" operations under the roofs of supermarket and big-box stores, undercutting other traditional retailers.

    I suspect that small business retailers in most markets are doomed, because there are alternative models like these for chains even in markets where internet operations aren't as competitive as in direct non-perishable product delivery or in non-physical goods. That's certainly the way it's been going for several decades.


    One trend that will run to completion is for information products, CD/DVD etc, to be sold over the Net with physical products not being available from stores. Books may go this way as well, but on a longer timescale. Or "bookshops" simply being printers (on demand) of online stuff.


    I moved a lot as a kid (dad in the Air Force), so that may be why I like the chain stores -- they're familiar and "homey" to me.


    Certainly more recently in the UK. Within my shopping lifetime I remember buying meat and fish loose as described in the supermarkets. Although I don't buy meat and rarely buy fish any longer, I can still buy fish that way on the market and at least one supermarket is advertising a change back to traditional skilled butchers and picking the meat cuts for yourself.

    As a sideline, although it's about 5 years since I was last there, when I was, French supermarkets were then still selling loose cuts of meat and fish that you could inspect and choose.

    Any although supermarkets stock very cheap clothes, anything more than rock-bottom prices gets you to a shop where you can try the clothes on still. Even the big high street brands do that - one bit that largely hasn't changed, although cheap options for largely unfitted clothes (T-shirts, socks and the like) are starting to appear online here in the UK too.


    What you're describing is a return to the all-prices-negotiated system that existed prior to the single price system. In such systems, most people buy less, because most deals are bad.

    But look for small-shop customization to make a return, as a result of improved short-run productivity.


    Historically, retailers both large and small have used different mixes of pricing strategies depending on their particular clientele. Different stores of a chain have done the same thing, hence the prevalence of "ghetto pricing" in low-income neighborhoods, where customers pay a premium and get less product and item size diversity because they have less access to transportation to cheaper neighborhoods. Oddly, that's the same pricing strategy as in high-income neighborhoods where customers pay a premium, and don't get access to the economy brands and item sizes because they don't want to spend the time to go elsewhere, or are convinced that paying more is a sign of socio-economic status.

    There are still some differentiable markets like that on the internet. Some people are willing to pay more so as not to have to spend more time searching or trying to circumvent opaque pricing strategies. Others are attracted by loss leaders and coupon deals or their equivalents. So in addition to basing price algorithms on how much a customer is willing to pay for a particular kind of product, internet retailers are going to try to correlate a buyer's willingness to pay a price with marketing strategy: does the buyer like coupons, does she tend to buy with loss leaders or shipping deals, etc. Stores could develop individual marketing strategies for each customer, tailoring the frequency of advertising as well as the level of discounts and mix of coupled deals.

    Tailoring complex deals with multiple products on the spot could reduce the transparency created by internet price-comparison tools and cooperative pricing and buying networks. And I expect that an arms race would develop between stores and pricing networks, as the stores try to identify which customers are working together so as to present them with uniformly higher prices. This could evolve into an instantaneous negotiating market ("iHaggle"?) where store order entry systems and pricing network AIs could dicker when the customer points a cameraphone at a product sticker, and all the customer sees is the final negotiated price (and any ancillary deals or offers.).


    Some one I trust was in a high class restaurant and started listening to the next table. There was some Marketing types trying to sell people from a corporation that made good paint to water it down a little at a time. Their pitch was the old brand name would keep people buying for a long time even as how well the paint covered dropped. That was in the early 70's. Many tests show now that paints that covered with one coat now take two, or more. Tell me about that Free Market. Most things are made just good enough to sell. And no better than the others.
    Remember true mass production, most of you do not. Its as dead as can be. The old rule was that when you made twice as much your cost was cut in half. But a lot more money is made by making less and adding useless customization, selling at much higher prices.


    Another factor: shipping goods quickly over long distances is likely to become much more expensive in the coming years, as fuel prices rise.


    You mean trucking goods, not shipping. Shipping is incredibly cheap by volume, it is the last 30 miles to the store which uses huge amounts of energy compared to the shipping container.


    i took my son on a 'shopping' expedition to a local comet/pcworld/comet/DSG conglomerated floorspace kind of place, there to feel the merch and such..

    we made some notes on which ones felt like they would sit well/sound best etc. and compare some general packaging tech details etc. - we were unable to try some of them, security boxed items, i encouraged my son to ask the (scary young) 'assistant' if we could try them.. after consulting a local area supervisor, "the manufacturer has put it the box and we can't unbox it, health and safety, sorry.. why don't you try the seinhoser over there, they have a stand you can try them on..they've paid the insurance for customer contact" came the reply..

    notes were duly taken, we went home, checked the prices on amazon and the google shopping results.. found them to be 15-20 quid cheaper.. so went for a brand he'd managed to try on but 'upgraded' to the twenty quid dearer versions amazon had available through one of their sellers.. the only thing lost was the 'can i have it now' element.. but then NumberOneSon hasn't thus far had any issues with instant gratification and understood the process.

    i wonder how he'll shop with his kids..

    i'll be teaching him to throw chaff with the purchase habits.. to have multiple purchasing personas.. proxy purchasing through anonymised agencies.. like TOR for online shopping.. although the race to monetise that trend once spotted..

    and of course, there'll come a point where i'm asking him about the best ways to shop..


    67: "You mean trucking goods, not shipping."

    Click is superceeding brick across more commodities, however most click purchases are still shipped via air. This is not good - cost of aircraft fuel is much higher per pound than any other distribution fuel and if you look at the FedEx model, there's a lot of wasted fuel in shipping goods first o the Hub and once again to the consumer's door.

    Most online sellers are pushing the distribution/ shipping cost directly onto the consumer. This practice distorts the total cost of goods sold for economic reporting/modeling as well as for price-conscious consumers.


    Literally walking through a mall right now, where they're doing a different type of price differentiation/obfuscation. "Spend 100 today and get 20 off a $100 purchase in January".

    Also, expect smartcarts, where the shopping buggy does the weird math for you. Customized when you start pushing and it either scans your PAN or the RFID on your credit card.


    Lastly, there's house brands: Again Costco and Sam's Club are big proponents of this, because it's not going to show up on anyone else's search... but who searches Google for "Kirkland brand frozen shrimp"?

    My wife does. I doubt she is unique in that.


    Eloise #6: It already works. If any of my friends has access to a good offer on "stuff", they text everyone, "can get X for y Euros, anyone want?" Shorter cycles of special offers will make things a little more difficult as one would need to be exactly aware of what one wants or needs and how much one is willing to pay at any given time, which will cause buying restraint (as you know the last good offer has passed and the next one has not yet come again) -- already does, in fact. But it works, just like announcing "am travelling by car from X to Y on day Z, anyone wants a ride, costs shared evenly" on the right web site works.

    When it comes to things like clothes, I pay boutique prices because that's where a person who knows more about fashion than I do and has tastes matching mine has already done the frustrating work of going through the cloth equivalent of a slush pile, selecting things worth checking out. As opposed to going through the equivalent of in an online store, or hiring a personal shopper.

    Eloise #62: Reminds me, online clothes shops refuse to deal with a person who has too many returns. So, no ordering things in three colours, three sizes each, at least, not for long. Add to that my ongoing feud with postal delivery services, I feel that buying physical goods via internet doesn't have its bugs ironed out.


    I use Amazon for many purchases but, I first encountered their algorithmic pricing recently. For the same item on the same page, they charged $17.91 for one box and $58.09 for two.

    Now that's algorithmic pricing!


    3D printing isn't just beneficial to individual consumers and small shops. In fact, initially it won't benefit any individual consumers except DIYers and until low-cost printers are highly reliable and easy to use and maintain they won't benefit the average small shop either. This can certainly change over the next decade or two as the technology improves and gets cheaper, but in the meantime, other business models could capture large segments of the market. I think a chain or franchise "copy shop" model could get a lot of market share. Chains like Kinko's continue to survive in an era when anyone can buy a digital printer for under $100 because they can offer higher-quality printing for jobs that used to be done by letterpress or offset printshops, and lower cost for medium-size runs than an individual with a cheap printer can usually get. I would be surprised if a similar business model didn't arise in 3D printing, and I would not be surprised if, like Kinko's, it took a significant share of the 3D printing services market and kept if even after 3D printers entered the home market in large numbers.

    So in 10 years or so retailing will consist of 3 major business models mostly controlled by large chains or large franchises: internet order and direct delivery organizations, big-box style brick and mortar companies selling perishables and discounted products and associated services, and point-of-sale manufacturing of customized goods and services. Of course any given corporation might be using a mix of those models; there's no need for them to restrict themselves to a single kind of business. Small business retailers will remain in small numbers as very-high-end boutiques catering to the snob appeal of hand-made and bespoke luxury goods and services. And most purchasing will involve mediation and negotiation between the store's electronic services and some coalition of independent1 electronic services on behalf of the customer.

  • "Independent" in the sense of not being directly owned by the store. I expect that the retail sales corporations will set up subsidiaries to offer negotiation services to customers of their competitors, and that the definition of competitor may get a little slippery in the face of complicated inter-corporate relationships.
  • 75:

    I think you discount the power of consumer ratings. Yes, Yelp sucked, but there's areas where it works very well— I'm happy to look at Rotten Tomatoes for movies and Metacritic for video games, for instance. Amazon ratings— well, I see that most of your books are rated at 4 of 5 stars, so that's only a star off!

    It's easy to imagine a war between consumers and critics who want to provide crowdsourced information, and producers who want to obfuscate it. On the other hand, whoever invents a system for generalized and reliable ratings is going to get rich, and they'll have a very high motivation to keep the ratings trustworthy. (The problem seems very similar to search results, so Google should have a head start in this field, but it could come from anywhere.)

    The difficulty is of course bad data— especially producer spam and irate-customer noise. So add metadata to weight the critics. Rotten Tomatoes does this minimally but usefully, by counting good/medium/bad reviews and distinguishing pro and amateur critics. Stack Overflow has a more sophisticated prestige rankings.


    Two things strike me - one is that simple individual pricing is generally illegal, but market segmentation is not. One thing all this information gives you is very fine segmentation and by the hour tuning of advertising, promotions and pricing to the inventory and current oversupply points. Watch the Dell website closely for a week or two for a masterclass in this today. There is a lot of segmentation and fine tweaking going on.

    You can also reverse engineer a lot of the promotional stuff which is interesting. Eg Tesco a while back was doing a lot of in-store only money off vouchers for items we actually bought - in other words they were trying to measure the added value we ascribed to having it all delivered as opposed to pushing a product more profitable than the one we currently used.

    The second thing is interesting and I think actually holds a better clue to the future of rating sites and the like. Given poor information about product quality and pricing pressure crap prices good stuff out of the market (this is the so called 'Lemon law' in economics). This in turn means that companies that make good product need ratings bodies just like banks need (but hate the fact they need) rating agencies.

    Companies selling product based on quality tend to push product samples and data to reputable review sites for sound economic reasons.

    I don't actually understand why we need most retail. For a few things where needing it right now matter, and decreasingly as the web gets better at providing information - because I want to see one are not enough to sustain most business models on the high street IMHO.

    Even when customers want to see one or get advice why carry stock ? Larger object suppliers already gave it up for the most part - the shop doesn't "sell" the product, its a review site then they get you one. Our new 'high street czar' the tories have acquired is basically calling for the equivalent of the refurbishment of the canals. Let it die except for the coffee shops and bits people need, turn the rest back into housing and fix the housing problem.


    The way to get a four star average review rating on Amazon is to get four out of five readers giving you five stars ... and the fifth giving you one star because they're offended by the ebook costing more than 99 cents (their idea of what all ebooks should cost: see the essays under "common misconceptions about publishing" linked from the sidebar).

    Which is by way of saying that customer ratings are only as good as the customers.


    I actually find this particular argument interesting because I'm coming to the whole thing from the perspective of a life-long customer in the Australian retail market.

    Now, until extremely recently, Australian retail has been a captive market. We're a small population, isolated by geography, language and cultural factors in our region (we're majority English-speakers in the bottom corner of South-East Asia). The vast majority of goods sold in Australia are imported. What this has led to is a buying public who were paying huge mark-ups and premiums on most goods, but who were largely unaware of the fact.

    This has changed in the last couple of years, with internet access becoming more ubiquitous and online purchasing becoming a lot more accessible. We're starting to see Australian consumers looking at the prices of products in various bricks & mortar stores (our "big box" retailers) and comparing this not only with the prices paid in other cities (particularly the case here in Western Australia, where we're at the tail end of another long freight chain) but also the prices paid in other countries (such as our nearby neighbours). We're starting to ask questions, such as "Why should I buy $FOO from $RETAIL_CHAIN when I can go to the manufacturer's website, order one direct from them, pay less for the product and shipping than I would for the product alone, and get it sooner?"

    Understandably, the Australian retail industry is starting to get annoyed with this.

    I have to admit, I'm waiting to see when the notion of offering lower (or at least reasonable) prices and better service is going to occur to them as a competitive tactic. So far they've tried appeals to patriotism ("keeping jobs in Australia"); appeals to the government ("make everything bought online incur GST!"[1]); appeals to our brand loyalty ("if this goes on we'll be going out of business") and even threats to take their bat and ball and go elsewhere.

    [1] Currently online purchases made from overseas retailers over a total of $1000 have to pay GST (it's determined as a customs fee), but purchases under that threshold are GST-free.


    I expect a more concerted attack to be made on cash soon.

    "There will always be cash as long as there are politicians to be bribed."


    If nearly all your shops are disappearing in the UK and if home deliveries are growing as a result, then I hope that this will eventually mean the re-introduction of your quaint "one-eyed" electric vans:

    This may sound a bit reactionary and a trifle too far from reality on my part but my original new year's wish for you Britons might have seemed less realistic. I was originally going to wish for you that in your future the government would build small monorails to each lodging, in order to efficiently deliver the goods produced in her majesty's robot factories. I was presuming the government would have been forced to pick things up given the inevitable collapse of British industry and British retail.

    Do a Google image search on Montrac monorail to see what I'm talking about.


    "$17.91 for one box and $58.09 for two."

    Very reminiscent of the airlines there.

    Consumer reviews need a certain volume to work well. Yelp works pretty well here in San Francisco where lots of people have been rating things for years, but 30 miles out of town it is very different. When you see three reviews you have to suspect they might be from the owner, his brother, and the landlord. When you see 500 over several years... probably not.

    IMO the death of independent stores is still mainly due to the automobile, it just takes them a long long time to die (decades) because a lot of them live as long as their last owner just making less and less money. Independents live and breath on pedestrian traffic. People driving past in their cars can't figure out what they sell in the fractions of seconds they have to register such things while trying not to crash into anything. The more pedestrian infested a neighborhood the more independent stores it will have. The more car oriented the more chains.

    In theory customer rating through the internet might reverse that to a degree... but probably not until cars are driving themselves.

    I think "loyalty cards" are mainly about price sensitivity (most people pay electronically so can be data mined anyway, though the combination of the two sets is interesting... should be able to extract some social network info out of that and help id payment methods). The loyalty card scheme allows the retailer to charge slightly higher prices to customers who are not regulars, think they are buying some kind of privacy, or just can't be bothered. Grocery is usually a very low margin business (a percent or two, I have read) so even minor price changes could massively change their profitability. Grocery stores end up with three tiers of price sensitivity: coupon's, loyalty cards, and "regular" sales. Basically a form of haggling.


    I think Asian markets offer some idea of that individual pricing would look like. Go to any market in Asia, and most small stores, and there will be no prices displayed. You're given a price by the salesperson, and it's up to you to negotiate. My personal experience of this, as a foreigner in Asia, and therefore subject to discriminatory pricing, is that I simply buy as little as possible.


    Think online promotions and couponing are pretty much the same as algorithmic pricing, only less likely to freak people out...


    Some things 3d printing cannot do, or the cheapo ikea built-by-numbers equivalent is an effective trade of time vs. money.

    Also, 3d-printed food, mmm, starch.


    For the same item on the same page, they charged $17.91 for one box and $58.09 for two.

    Many years ago, my father and some friends did this experiment (they were running the Kiwanis Club sausage booth at the local Oktoberfest). Their sign offered sausages at 25 cents each or three for a dollar...and it was remarkable how many folks took them up on the latter price.

    Some people shop carefully, though; even years later he told of the little girl who studiously examined the sign, waited in line several times, and bought a single sausage every time.


    I'm pleased to hear that carpooling and the like work somewhere in the world. I'd like to suggest it's rare, but that might be national bias.

    Certainly in the UK, France, US and Canada if you stand on the street at rush hour and note numbers of people in cars, the vast majority of them will have 1 person. Some proportion of those will obviously have some reason that we would accept is a good one but many of them could car pool but don't.


    I'm wondering how price obscuration could play into the eBook market. As we know, readers aren't going to accept the prices that publishers/authors want to charge, but publishers/authors are resistant to changing methodologies to meet the market.

    How about charging: £10 for the entire book, £1 for each three chapters (of a 36 chapter book), or £5.50 for half the book

    couple that with time dependency on the base price relative to launch date and it's not too difficult to offer headline numbers like "99p for the new Dickens novel (well first chapters anyway)" - even inflating the price if they come back for the later chapters quickly (eg they are hooked). Pay by chapter, with the later chapters costing more, but all costs decreasing over time.

    Or even "49p per hour" type charging.

    Doesn't fix the main problem with an obsolete industry model, but I can see a keen MBA promoting it in the boardrooms of the big publishers.


    3D printing is interesting, but it is still decades away from being able to make really useful stuff beyond the odd plastic widget


    If you can't beat em, join em!

    Best Buy / Car Phone Warehouse showrooms can't be sustained up against consumers equipped with Amazon's price checking Apps.

    Enter Cassandra pricing for all


    Oh no, you just have to do it the British way - offer them seats on the board or sine cure positions with boring titles.


    It's not a bedrock assumption, it's a result of microeconomic assumptions under many circumstances.

    Among those microeconomic assumptions is a transparent market with equal prices potentially available for everyone (modulo cost of information, transaction, transport etc.), which is exactly what we're discussing doing away with.


    To the best of my knowledge Amazon do not offer different prices to different customers for the same item bought at the same time. Remember though that Amazon is also a platform for other retailers to sell on. Where more than one merchant sells an item, Amazon tries to collect together all these different offers on the same page, and chooses one particular offer to show at any given time. Merchants are free to set their prices as they wish, and the customer (you) are free to choose a different offer from the available set if you don't think the current one is a good deal. Of course, prices can vary over longer periods of time as well so prices do change - just not per-customer.

    Also note that Amazon have a "B-grade" stock merchant which occasionally lists cheaper (box-open / returns etc.) items for lower prices. Obviously these are limited availability.


    Your book pricing model won't fly for two reasons:

    (a) The value of a book is in the whole thing, not in a subset of it. That's why you can currently download sample chapters for free on Amazon's Kindle -- the value is in the whole thing, and if you want to keep reading after chapter one they know they've got you hooked sufficiently to buy the lot.

    (This may change if we see a reversion to the classic serial as a literary form, but arguably those aren't novels in the modern sense.)

    (b) Legal boilerplate. Publishers don't own novels, they merely rent the rights to re-sell them from authors. And the publisher-author contracts are the bottleneck because they are predicated on a certain model of how the resale process works. To sell books using a different model requires a new contract. Which requires new legal boilerplate. Which means getting the lawyers to draft something that the authors are willing to sign (because when you turn a lawyer loose on a commercial contract their first instinct is to make a land-grab, and obviously smart authors and their agents don't like land grabs and threaten to go elsewhere.)

    I could ramble on at length ...


    You underestimate the speed of progress. 3D printing in metals up to and including stainless steel and titanium is available, and it's useful enough that they're planning to use it in the manufacturing process (not prototyping!) of the F-35 joint strike fighter.

    Okay, so manufacturing of the F-35 is still some years away, but 3D printing in titanium is here now (admittedly at a price that suggests "jewellers, medical joint replacement, and aerospace applications only" for the time being).


    Amazon may not price that way but some of their market folks do clever things with search. When I went hunting for a specific bit of hardware the same supplier showed up several times with the same product at different prices the lower prices being tied to the more obscure search terms. In other words anyone who typed in the obvious keywords got a 30% higher price than the person who could be bothered to try a few others and click down the lists to the third or fourth page of results.

    Really digging, and searching dug out their lowest price - which was for an ex demo unit and well hidden indeed !

    On the subject of 'no prices' and haggling - this only works when people have time (ie the cost of human labour is cheap). If not then it's cheaper to go next door to the shop with pricing stickers than to haggle. In many parts of the world people time is still incredibly cheap - in many developing countries you don't find drink machines, traffic lights and other bits of mechanisation, not due to technical barriers but because people are cheaper...

    (And that leads to a whole world of pondering - what happens when everything you want is incredibly cheap and trivial to provide by 3D print, robots etc - do you end up cutting down on robots because they do people out of the pleasure of having an existance..)



    Is Japan not in Asia then?


    Hopefully we can see the return of choosing to buy products from the people you most like. I'll happily pay 10% extra to support a shop with a nice atmosphere and human staff over a cold, bland commercial zone staffed by automatic checkouts and retail drones. Not only does it make me feel less like suicide, but generally extraordinary situations are handled better if you have some kind of a connection with the people who work there because an amount of trust has been built up on both sides of the relationship.


    The last time I was involved in buying a cheap PC (for my father-in-law) I saw a lot of price opacity in action. We ended up driving round the major UK supermarkets and big box PC retailers, and I noticed how each store had subtly different models - presumably done to make it difficult for consumers to make a direct comparison for price on a specific model.

    I had the suspicion that essentially identical machines were given different model numbers in order to prevent direct price comparison.

    Ian (87) - actually, I think the way to go is price changes that vary as a reflection of demand - i.e. in the minutes after midnight on publication date, some people would have paid thousands of dollars to read the new George R R Martin.

    The people at the bottom end of the curve can either wait or steal - but there's little point chasing them.


    So, how long before smart phones are banned from stores? I suppose you might wind up with hobbyists disguising their phones as part of their clothing. Imagine the thrill. Would shoplifters have an easier time what with management being distracted on two fronts?


    i use the bar code reader on my iphone when i go to costco.. to see if things really are a bargain


    What 3D printers need to go mainstream is (1) sub-millimetre accuracy and (2) the ability to print several colours in one go. At that point, they'll be able to print most toys, from LEGO-compatible blocks to custom My Little Ponies.

    The intellectual property shitstorm will then follow shortly.


    I'm pretty sure both of those exist.

    What will drive 3d printers into the home is an all-in-one unit that can deal with plastic, ceramic, metal and ideally circuit boards.


    a reversion to the classic serial as a literary form

    What do you think is the chance of that happening?

    Some time ago (this year or last) a German radio station broadcast Tolstoi's War and Peace as the serial it used to be, which I found surprisingly pleasant to listen to. The exact opposite of Anathem, which I bought in book-form after the frustrating experience of listening to the audiobook version. I'm blaming it on the necessary redundancy in a serial being more suited to listening. So, maybe there is a niche for those as well.


    Putting a deference letter or number on what you sell is a well known why of keeping people from comparing prices. Been going on for a long time.
    More than a few years ago I was checking up on mine and your class enemies. In the same month the two biggest money monkey magazines had long articles on how people were cheating their share holders by using the old way of pricing. They wrote the old way of adding %10 to the cost of making something had to go. The new "FREE MARKET" way was the only way. In it the price was raised till sales dropped. Then raised more to a point where the most profit was made taking in account shipping and other cost. Within months, costs of everything from candy did not raise, they jumped up. The business editor at my local paper said not to buy if you did not want to pay. But everything when up to the top.


    An idea from my wife:

    "we have noticed you were recently diagnosed with diabetes. Your personal candy prices have dropped. Congratulations! Your personal insulin prices, however..."


    So suppliers are trapped in a race to the bottom, unless (a) they can find some clear value-added proposition to attract consumers other than low price, or (b) they can work out a way to reduce price transparency in order to impair the accuracy of consumers' pricing decisions.

    Well, b) - see Douglas Adams, Confusopoly: "a group of companies with similar products who intentionally confuse customers instead of competing on price"

    In some areas where Big Companies are all that's there, this is what we already have (think: cell-phone providers for a new-ish example, or insurance).


    Being able to print usable Lego blocks in different colors is an excellent test case for plastic fabrication on a 3D printer.

    At Brick Fiesta, here in Austin this summer, I listened to one of the Lego marketing people talk about the quality of the Lego knockoff products in the market place. The cloners are using injection molding equipment just as Lego does and they have a difficult time matching the fit and finish of the authentic Lego bricks.

    I'll be interested in 3D fabrication when I see a functioning stepper motor that is built of fabricated parts.


    Never. Because you could probably separate the average customer from his/her pants before they'd give up the phone.

    Also, considering the developing near-field purchase technology, separating the customer from the phone may remove the ability to pay for the product.



    Part of the point of referencing Dickens is I think the 'novel by instalments' idea of weekly/monthly parts has probably got a resurgence due in the age of eBooks and short attention spans. Fits wonderfully with the commute...

    And your point about legal boilerplate just points up again how the conventional publisher model/workflow isn't going to cut it in future. Why worry about something that, like it or not, is going away?


    Turning the tables for a moment ...

    The cellphone co's are in a trap defined by available bandwidth over the air. The cost of entry is prohibitive because it involves installing $BIGNUM base stations and rolling out cable (or high bandwidth microwave links) to them -- a serious hardware infrastructure investment. There are a limited number of frequencies available to operate over, a limited number of suitable locations for base stations that maximize coverage while minimizing cost of installation, and a finite population of customers. So they're all competing with one another to maximize their profits in order to pay off the infrastructure investment (and interest thereon). They can do this in two ways: soak the customers in the short term by skimping on the infrastructure service and charging high, or try to lock the customers in for as long as possible ... or even pursue both strategies in parallel.

    It's interesting to speculate on where we'd be if our mobile infrastructure followed a model like the British railway network -- the government (or a gov-owned company) builds towers and rolls out fibre bundles to them, then leases the fibre bundles and charges cellcos rent for sticking their base stations on the pre-existing fibre/tower nodes, thus massively reducing the cost of entry and encouraging competition among small physical operators (as opposed to MVNOs). Alas, I don't know of any country that's tried doing it that way -- they've all gone for the US-style competing monopolies that own their own infrastructure model, or worse (nationally-owned monopolies: the only model that performs worse than the descendants of the Baby Bells).


    Hmm. You give me a good reason to think about writing short stories again.

    (Serial novels: each instalment needs to be sufficiently self-contained to provide a happy fun reading experience, which means it needs to deliver a short-story sized climax or element of plot closure or a cliff-hanger ending. Ergo, certain short story skills -- cramming a quart into a pint pot -- are at a premium. However, modern novels aren't necessarily structured that way: they're written to be an immersive experience. A certain degree of cognitive re-tooling is therefore needed in order to switch from a contemporary novel-spinning mode over to serial writing ...)


    Why worry about something that, like it or not, is going away?

    Because of the roughly 20 books of mine that are wrapped up in complex legal contracts. Yes, I can eventually revert the rights to them (once the publishers let them go out of print, which happens when they stop selling ... although the definition of "out of print" is currently a movable feast of considerable interest to agents and lawyers because publishers would like to define "in print" as "available as an ebook, or a print-on-demand hardcopy", and we don't happen to agree with this, resulting in all sorts of contractual footnotes that I won't bore you with). Those back-list titles (the Charles Stross novels you can find on Amazon if you want them, but which won't necessarily be in stock in your local B&N) provide a surprisingly high chunk of my income, because even if they each only sell 500 copies a year 20 backlist titles add up to 10,000 annual sales. So they're a matter of some importance to me, in the long run.


    At least as far as the US goes, I'm wondering if there might not be something of an average cost increase- a government-built system would likely be required to maximize the number of people served, and legislators would of course lobby to get ample coverage for their own constituents...even in sparsely-populated areas. I suspect there'd be an efficiency hit.

    I suspect you might could get somewhat of the same effect by mandating open access- requiring a cell tower owner to rent space to anyone who can meet a reasonable price, so if anyone builds infrastructure everyone can theoretically benefit...including the guy getting paid the rent.


    However, modern novels aren't necessarily structured that way: they're written to be an immersive experience.

    Modern novels might not be, but modern TV series are...and at least with sci fi series, fans get seriously hooked on the short installments if there are some major unsolved mysteries in them. Consider Lost, Babylon 5, Battlestar Galactica...actively leaving major plot points flapping in the breeze for multiple episodes seems to be a hook.
    Of course, you better be ready with the next instalment by next week...


    The Mongoliad tried this serialised book approach. They added various ways of interacting to let you know easily when a new chapter was available, discussion forums and the like.

    It was an interesting experiment. It's hard for me to judge if it succeeded or not because I fell out of like with the story. I would, probably, have finished it if it were a single book (e or paper) because it wasn't that bad, but I lost the desire to go back and read the next chapter next week. That's a flaw in the model I guess, expect I'd paid my fee up front for access, same as if I'd bought the book in non-serialised form) so financial I wasn't a disaster for them, nor for me, since it was priced similarly to buying a book.

    But with a different pricing model it could have been a disaster if my experience was typical.

    I wonder too, on a different note, if there is an inadvertent magic to the 42 minutes of TV per week format (with US adverts that gives you an hour long show slot). Even in incredibly highly arced shows (BSG, B5 etc.) each episode is long enough to tell a moderately stand-alone story that contributes to the overall arc. You also produce a story that takes about 16 hours to consume per arc. I know I read quickly, but War and Peace is the only book I've read that gets close to that. All three volumes of LOTR is considerably less than 16 hours of reading. It's possible the whole Harry Potter series is 16 hours or more for me. If it needs that sort of chunk size to work well (an untested hypothesis obviously) producing 5% of the HP-verse per week is a heck of a lot of writing! I don't believe I read 5X faster than normal, but even 1% per week is pretty hard going.

    There is also an editing problem. How much do authors go back and change content in the first few chapters in light of how the book ends? (A quick call to one I know suggests every author she knows makes fairly major rewrites to the first 5-10 chapters after finishing each book). That won't be available, and even in less tightly arced stories (Buffy, I'm thinking of you!) the writers can occasionally paint themselves into a corner (Season 4, Spike was set up to split the Scoobies up, which he did, then the writers realised they need them together for the baddies plan to make sense too, so Spike took the blame for doing what he'd been scripted to do). But there's not so many ways out if you are publishing in a serial form.


    How much do authors go back and change content in the first few chapters in light of how the book ends?

    A lot. And if the first chunks of the story are in print when you realize you made an oopsie, reconning things to fix the story can be hard. (This happened with the "Merchant Princes" books; the first two were written as a big fat novel, and I was some way into the next book when I stubbed my toe on a gigantic plot blooper that ended up dominating the entire series. It wasn't originally going to be about extradimensional narcoterrorists with stolen nukes taking on Dick Cheney, honest, but by book #4 when I had to tie up the loose end from book #2 about the high-ranking official colluding with the Duke, there was only one candidate who fit the slot in the already-published story line ...)


    The problem is that we are moving away from "dumb" objects. 3D printing a spoon or even a knife will be quite viable, but anything with intelligence will be off the menu for decades. I don't think 3D printing will be revolutionary, unless you own Gommits'R'Us


    " At that point, they'll be able to print most toys, from LEGO-compatible blocks to custom My Little Ponies."

    What % of toys this Xmas depended on inbuilt electronics?


    I dunno, but in my experience even modern under 6 year olds can be kept busy with a bucket of lego and some toys with nothing more complex than a few plastic cogs and a spring or other such wind up mechanism within them.

    Heck, even the nerf guns I've seen which do contain electronics don't have much you couldn't build yourself from parts bought online and the rest of them is plastic. Why yes I am looking forwards to shooting my nephew with foam darts if someone buys him a better spring powered dart chucker.


    Your personal candy prices have dropped.

    Ha. As I realised when buying sugar earlier this week, the prices already make no sense at all.

    Pure white sugar happens to be one of the highest purity materials you can readily buy. It's higher purity than most "analysis" grade chemicals — so much so that organic chemists doing reactions with ordinary sucrose will pop out to the supermarket rather than ordering from a specialist chemical supply company. It is something like 99.99% pure sucrose.

    Or in other words, there's literally no perceptible variation between different brands of white sugar. You get exactly the same stuff whoever you buy it from. So why is 1Kg Waitrose own-brand fairtrade granulated white sugar 30p cheaper than Tate&Lyles' equivalent? Why is granulated sugar significantly cheaper than caster sugar? (The only difference is the size of the crystals.)

    Even crazier: why is "Golden granulated sugar" evenmore expensive than pure white sugar? Golden granulated sugar is only about 99.5% pure — little enough difference that there is no discernable difference in flavour. Except golden sugar is an intermediate stage in making pure white sugar. It has only been through one recrystalization, whereas white sugar has been double recrystalized.

    That relative pricing is mind boggling when you understand that recrystalization is not a particularly cheap process. Takes lots of energy to make boiling hot saturated sugar solution, and then you never get back all the sugar when it crystalizes out again. The best yield you're ever likely to get is about 85%. So two recrystalizations means you're throwing away over a quarter of your starting materials, and that's assuming the best case scenario.

    Yes, let's all pay more for a product that is intrinsically cheaper to manufacture. Whoever came up with that golden sugar marketing ploy must have been giggling maniacally all the way to the bank.


    We had a huge natural experiment in algorithmic vs. (relatively) static pricing over the last 20 years. It is called "Tesco". Basically (putting on my business consultant hat) fancy pricing of any kind is a hi-lo strategy - you're putting some stuff on a loss leader and hoping customers come for the freebie and pay slightly higher prices for the rest of their shopping. (However you cut it, it's still shopkeeping.)

    The alternative to this is EDLP, every-day low pricing - where you aim to have the lowest prices on the biggest selling lines, on average. Tesco historically did EDLP, Sainsbury hi-lo, and look who won. (Even John Lewis is an EDLP operation - never knowingly undersold, right?)

    Obviously a lot of this is a question of emphasis rather than an absolute distinction, like most discussions of strategy.

    Tesco Clubcard at least sounds like a counter-example. In a sense, a loyalty-card scheme is a compromise between the two, because it allows you to throw out eyecatching offers without the problem that the customers see through you and buy x zillion packets of biscuits on spesh and never come back. You've got to be a regular shopper to get the offers. This is interesting, because it means that EDLP is absolutely necessary (otherwise it wouldn't be worth having the card). At least when I used one, it regularly pushed Tesco's Finest range at me - now, premium-economy options are very often very good for margins, and I suspect that Clubcard is more of a upsell than a loss leader.

    Also, did you know that Dunnhumby (the spinout company that manages the Clubcard, one of the world's biggest data-miners) actually provides Tesco with a relatively austere classification matrix? IIRC they use the Clubcard data to classify customers into one of 5 groups. I recall a Tesco director saying that it was a 80/20 business in both directions - 80% of the benefit came from the first 20% of the effort, and 80% of the trouble came with the next 20% of the benefits.

    In my own field (GSM), we've had quite a lot of experiments with fancy-dan pricing, but they haven't had a great lot of success. The strategy that does work reliably is big bundles (note that the data element needs to be set at a level somewhat more than people expect to use, but not "unlimited" as it incites pig behaviour). That, and PAYG (which usually means flat pricing).

    Oddly enough, 3UK's experiment with letting the subscriber dial in their own numbers of minutes, texts, and MB didn't work out too well, which was a pity as I was going to write a script to scrape the web page and work out the ratios between their pricing for voice, messaging, and data:-)

    I suspect that you're underestimating the "iPhone offering", anyway - the best phone you might want, plus "plenty" of service (i.e. slightly more data than you expect to use and slightly fewer voice minutes), for a defined sum a month.

    I expect weirdo pricing to be targeted at the poor, and everyone who isn't desperate to clamour for defined prices, and a lot of energy to be devoted to stopping the well-off cherrypicking the loss leaders.



    Your critique is right on target here. I can't imagine nonprofessionals ever home fabricating a 10 layer circuit board and then soldering a 456 ball grid array ARM core processor to it.

    The home fabricator could buy a board like the Arduino to build an intelligent product around but he still has to write the code that runs on it. And how much is embedded programmer time worth an hour?

    I bought my granddaughter a small electronic organ for Christmas. $39.95 I can't imagine home fabrication ever competing with the economics of the toy business. I used to work with an engineer who had worked for Matt*ll and it is scary what they will do to save a penny.


    Also, I think the big high st. chains are doomed. Walk into one on an actual high st. and you'll find somewhere that's not had any serious investment since Tony Blair's hair was dark. There are good reasons for this; they don't have the range of goods that online (more so than big box) can offer, they don't have the logistics advantages of being out on the M-way, and they don't have the indies' service value.

    Big box in the UK is finished - has been since the late 90s when first John Selwyn Gummer and then John Prescott changed the planning regulations to make it very difficult to build out of town shopping centres. You'll notice that things that do get planning permission, like Westfield and the Birmingham Selfridges, are right in the guts of cities. The high street chains are investing in big, showpiece locations (probably as a pull-through for their online business).

    That leaves the supermarkets' local operations for supermarkety things, and the indies, and of course the pub trade.


    Actually, there are two separate reasons for sugar prices, one of them arguably rather better than the other.

    One is that it's our old friend market segmentation: now that everyone can afford white sugar, it (like white bread) has become the default. This means that you can now rebrand the alternative (which used to be the pauper's version - less refined sugar, or wholemeal bread) as something fancy and upmarket. Some people will pay more for sugar that is visibly different to the cheap stuff; others will pay extra for the less-common version because it's what they need for a particular recipe.

    The second (more solid, on the whole) reason is economies of scale: granulated white sugar is the cheapest kind because it sells in greater bulk than all the other types put together. If your buyer goes to the manufacturer/importer and says "I need 100 tonnes of each of these ten types of sugar, and ten thousand tonnes of white granulated", guess which one you get the best price for. (The same point applies to the question of crystal sizes, although more important there is the fact that ensuring regulated crystals for icing, jam, etc, sugar is an extra process that costs money, while no-one cares about the crystal size of cheap granulated.)

    It's alleged that at one point, brown/yellow/golden (thus nominally less refined) sugar sold in much of the "west" was actually highly refined white sugar with molasses (extracted during the refining process) mixed in to form a surface coating. Why? Because it was much cheaper to do that than to separate the sugar earlier on - you'd have needed to process it differently, ship it separately, and so on.


    A question: in the future, is there IKEA? I ask because I recently had 517 kg of IKEA products delivered. Nothing wrong with the products, but their business processes for anything that doesn't involve a car are amazingly shit, the call centre is bad, and the website is mediocre. I pity the employees who retyped the same information into three, yes, three line of business apps (one of which being an MS Excel sheet with VBScript and a lot of readonly cells!).

    It is already the case that there will never be another IKEA store in the UK, because planning permission will not be granted (and relaxing that rule is one of the things the Tories have tried and failed to do). But beyond that, any vaguely credible forecast has dear fuel and fewer cars in it. And they just aren't very good at either online or showroom-plus-delivery.


    Alex' point at #122 reminds me of two things.

    1) allegedly J.K. Galbraith, in the USA during WW2, taking part in some sort of economics work, designed a massively complex system for who had to be taxed or got some profit, not dissimilar to the complex pricing methods previously discussed.
    Some old hand basically said no, it is too complex, a simple system will work fine and give the right signals. And what do you know, it did. No need for massive complexity after all.

    2) Privatising the NHS the way the condems are doing will lead to massive complexity, in the same way as new labours 'reforms' did, therefore cost of healthcare will go up. Which is a bad thing, but the people in charge don't care/ are criminally negligent/ bribed.


    In Canada the cell phone / telco companies are in a radically different situation from railways. One year there's a bandwidth squeeze, next year there's a new kind of hi-tech coming in (digital instead of analog, satellite, fibre, mixed, UWB...) and the other year there's more change in the regulation structure which lets more companies come in to compete. It never stops.

    It's all about electronics and software and these are constantly changing, constanly innovating. As a result there's a spirit of competition that can thrive in the telcos, at all levels. This can mean "simple" things like having an ambitious company ("we try harder because we're number two")constantly seek better antenna technology so the cell towers can be hidden among existing architecture, and the better municipal spots get attributed to them.

    Yes, new hi tech is costly but it can be changed easily. All it takes is a good engineer and the correct work order and drawings (I used to manage a CAD department in a telco) sent to the field techs and presto you,ve upgraded frequency allocations or installed hundreds of the newest digital emitters in a few days. You can't do that with rail infrastructure! It takes years to install new switches on just a few sections of a rail network.

    But sure, if you live in a country where the entrepreneurial class is ossified and there's no spirit of competition left, then you might has well have all the fibre and/or satellite infrastructure in the hands of a big well run bureaucracy in the nation's capital.


    What will happen is exemplified by places like "Go Outdoors". I went to their huge store looking for a good pair of boots. Found some, but not in my size so I searched online. The best online price was... Go Outdoors! So I bought 2 pairs.


    Hey, you can argue that we hardly had an entreperneurial class at all in the UK, with the evidence chain starting in the late 18th century. In general, the aim was to make money and sell up and out into the landed gentry, not sit working and owning for years. There were and are also gigantic structural differences between north america and the UK which I won't go into here.


    Regarding 7C (i think - the computer prices one)...

    Dell at least allegedly already does this. There are ancedotes of them starting specials on certain network cards and components as the GPS / RFID tracking indicate that the latest truck shipment from the subcontractor reached the parking lot of the main assembly factory, with the objective being to really seriously maximize inventory turnover.

    JIT Sales incentives...


    A couple comments:

    1) You're talking about the reinvention of barter. Companies are doing market segmentation ala Joel Spolsky's marvelous "camels and rubber duckies", the other side develops better search engines.

    2) The smart phone is just step 4 in "mainframe, minicomputer, microcomputer, smartphone". The computer in your company, the computer in your department, the computer in your office, the computer in your pocket. (This time kicking the old technology up into the server space is called "the cloud". The Altair had horrible UI issues too, they got worked out: a USB docking station like a toshiba dynadock or similar can not just charge a smartphone but give it 2 big screens plus keyboard and mouse, while mounting extra storage and gigabit ethernet; hardware's here today.)


    There comes a time with price opacity when the consumer just gives up and doesn't buy at all.

    Why are so many commenters under the impression that the number of people opting out is not just another number that can also be optimized statistically?


    Actually, I'd debate the idea that designer brands use the strategy (a) of your proposed race to the bottom (valued-added). American outlet malls do a good job of messing with this.

    A bigger way to look at it is whether someone follows an artisanal production model or a commodity production model. I'd suggest that assuming that everything gets commodified is probably a bad mistake, especially for a producer of artisanal books. In artisan work, every product is different, and part of the appeal is the relationship between producer and consumer. This can work with books, but it also works in certain forms of agriculture.

    The other type of production (commodity production) does have a race to the bottom. To a point.

    The thing that gets weird here is that, of the two systems, artisanal production has historically proved to be the most resilient in the face of crises. In a less romantic frame, people start finding ways to meet ends meet when the system breaks down, whereas commodity production depends on having the system intact. Artisan production is small-scale, and it's the fall-back.

    As for having every price negotiable, this is also a very venerable tradition: As Greg pointed out above, it's called haggling.

    The only new thing here is that the globalism of the 80s and 90s is proving to be less the panacea than its proponents wanted. Since I'm currently reading a history of the Great Game, I find this totally unsurprising for some reason. History is playing the old rhyming game again.



    As others have pointed out, the soap opera/serial on TV matches quite well with the episodic nature of a week-by-week series. Another that bears thinking of is a multi-character story where you first 'set the scenario', and then follow individual characters for a 'chunk' - telling their story in the context of the large whole. Lots of scope for playing with people's heads as to what they 'think' is happening ...

    With 30-45min chunks for the commute, and 99p for the price of each chunk you can make reasonable coin if you get some traction. Even better, the money rolls in as soon as the chunks get put 'out there', so less of the advance money worry - though the thing needs planning up the wazzoo at the start.

    As an added benefit, you can take the whole story and convert it from a 'character following' to 'timeline following' novel for publishing in the conventional(ish) way, for another bite of the cherry.

    From a personal perspective, it appeals to me to see things come full circle back to Dickens, as well as seeing something taking advantage of the low/no cost of publishing of the eBook distribution channel. New channels should mean new approaches.


    I guess the one obvious difference between book sales and TV series is that it's nearly unheard of for one writer to churn out an entire season on his own. I think J. Michael Straczinski did it with one season of Babylon 5, but generally it's a collaboration.

    One book "producer" organizing the content and plotlines of a book, editing everything for tone and writing some of the key content, while farming out less critical scenes to other writers as a workable method?
    "Next up on Charles Stross's "Offspring of Uranus", two special 30-page installments by John Scalzi..."


    I find the practice of opaque pricing in the context of an economy organized along capitalist lines (the classic demand economy we all got in econ101) rather depressing. Because - even after all that's happened in the last decade - I'm still a pro-capitalist kinda guy. Not on the strength of any of that A #1 rah-rah bushwa, understand. But because I still buy into the idea that 'price signalling' is by and large a superior method for allocating scarce resources. Well, that's the theory anyway ;-)

    Now it seems from what is being argued as the coming thing, the trend towards opaque pricing in the second decade of the 21st century, that even the theoretical justifications for preferring some form of capitalism over a command economy are being thrown by the wayside like expendable casualties in the war against . . . well, you fill in the blank.


    On the other hand, it's generally close. You kinda know what you're willing to pay for a good or service, but the providers of those goods just want to appear to undercut their competition, even if by just a few bucks.

    Besides, opaque pricing is probably nothing at all in magnitude compared to interest. "It cost $2000! Plus credit card interest for the next five years or so!"


    Here in the States, my town has a high street kind of place. There were good buys for good things. It had everything from gas stations and plain jeans to very fine goods. It was all owned by the family that devolved it in the 20's or so. They sold out and the new owner jumped the rents to drive out oldtimers to make room for stores for the very best people. Well, around here the best people are too smart to waste their money the way they do on the coasts. So its been in trouble for a long time. Now it gets help from the taxpayers who were driven away to raise its class. Got to love the USA.


    And getting back to Charles at 116, this is where we all have to suffer because Charles is unusually rigorous. When Pratchett or Rowling find that they've stuffed up on a vital plot point that should divert, overhang, displace, or dominate the series they just ignore it and charge on regardless. Charles basically terminated the series because that was the way it should logically have turned out, which was praiseworthy but also vexing. I would have been prepared to cut him some slack - deus ex machinas are not, strictly speaking, illegal in the UK.


    To a certain extent, all readerships are a conspiracy against the author. I love Charles, but being in Australia where hardbacks are expensive I wait till he's in paperback to get the new ones; and as for the backlist, after a few years I go to the pirates - buy copies second-hand, and give him nothing at all.

    Traditionally, of course, your chance of finding Iron Sunrise in any given second-hand bookshop was so low that it was worth ordering it from stock, but now, with aggregation, it's easy. Without trying to give anybody ideas, Awesomebooks has eight perfectly good Strosses under three quid.

    I can't see why any homo economicus would actually pay full price for the backlist. Though I can certainly understand why Charles would in his more irritable moments see me as a crass little-short-of-thief.

    And I'd certainly pay for on-line Stross serials, my cost problem being of the low-level kind that can be easily deceived by cutting the final price up into separate books, as it actually was, or separate episodes. The Family series would have cut up nicely, actually. It doesn't actually solve our basic problem of there being only one Charlie (though the hosting solution is attractive) but it reduces the time between fixes.


    One book "producer" organizing the content and plotlines of a book, editing everything for tone and writing some of the key content, while farming out less critical scenes to other writers as a workable method?

    That's almost exactly how “Shadow Unit” ( works right now.


    Actually, that's not quite true in this case. I will not rule out doing more Merchant Princes books in future. However, the series didn't sell terribly well and the money on the table for further novels right now is half what I can get elsewhere for writing Laundry files books, space operas, or weird stuff like "Rule 34".

    If Penguin Putnam and Hachette go bankrupt, or if my other novels mysteriously bomb, or if the Mongolian translation rights suddenly catch fire and go best-seller in Ulan Bator, you might see a resumption in the Merchant Princes series. (Unlike the Eschaton series which is well and truly terminated.)

    An important note, however: I'm a couple of years shy of turning fifty. I can no longer routinely turn out two books a year. I don't expect to be writing past eighty years of age -- in fact, I'd be surprised if my output doesn't slow down once I pass 65. So I estimate I've got time -- assuming the gods of bookselling smile on me -- to write another 20 books between now and, say, 2029, and then maybe a handful or two thereafter. I'm approaching halfway through my lifetime output, in other words. This is focussing my mind on what I'd want to be remembered for, and "writer of entertaining but essentially forgettable pot-boilers" falls short of the mark.



    It would be absolutely trivial to develop a Firefox extension and a small server application for it to connect to for users to compare the price they get on I recon I could whip up a POC in a day or two. It probably even already exists, haven't checked.

    Already on mobile there's quite a few barcode scanning apps that give you a list of prices for a given product.

    Not sure how that factors in your analysis.


    I can't see why any homo economicus would actually pay full price for the backlist. Though I can certainly understand why Charles would in his more irritable moments see me as a crass little-short-of-thief.

    Actually, no: the second-hand market and libraries have been part of the reading cycle since long before I was born.

    What I would like to be able to do is to compete with the second-hand market by selling electronic copies of my back list direct to the public for as little as 99 pence (ahem: I view that price point as being one that kicks in many years after initial publication). However, we don't currently have an industry structured to do that. The nearest we've got in the UK is the Gollancz SF Gateway, which hangs off the SF Encyclopaedia and will sell ebooks of a huge range of older classics for -- well, their offer price in the run-up to 1/1/2012 was £2.99, but I think the price has gone up to a fiver again.


    I'm not sure how commercially viable "Shadow Unit" is. (I can ask the folks who write it, if they're willing to talk publicly, but I suspect they won't want to until the project's wrapped.)

    In any event, there are huge editorial problems once you begin to sharecrop fiction, namely maintaining consistency and tone. Not to mention ideas. Idea-rich stuff, which is my stock in trade, would be virtually impossible to outsource, in my opinion.


    Once again, the dead hand of the past holds us back: the books I've looked up on the Gateway site are all restricted so we can't buy them in the US.



    (Unlike the Eschaton series which is well and truly terminated.)

    Boo. I still believe that the corner you're in there (which is an impressive one, yes) has at least one path out of it with both story and physics consistency and a good character plot to run with.

    Sean Fagan and I have argued this offline some over the years, and he's not convinced, but I think it's entirely doable.


    See Mary Rosenblum's "Search Engine" (Year's Best 23) for a really good treatment of this world.

    @all talking about 'ghetto pricing', either by name or by description: the phrase you're looking for is "captive market."


    The problem with being so strict about the Eschaton series is that it was a thematic playground, let's pit one kind of sci fi universe against this other one. Demanding that the universe where that happens be internally consistent on top seems like wanting to have your cake and eat it.

    . When Pratchett or Rowling find that they've stuffed up on a vital plot point that should divert, overhang, displace, or dominate the series they just ignore it and charge on regardless.

    Pratchett dedicated a whole book to it, The Thief of Time basically explains that the Discworld timeline broke and was painstakingly mended by the Time Monks, and not everything fit exactly together again when they were done with it.

    Re: Merchant Princes. Can't say I'm too sorry, never managed to get a feel for any of the characters, The Laundry on the other hand, seems to have a bright future, including spinoffs and possible adaptations.



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    This page contains a single entry by Charlie Stross published on December 27, 2011 11:37 AM.

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