Wednesday, December 8th, 2010

The value of comparing prices

Companies better get used to the idea of shoppers armed with smart phones, instantly comparing the prices of their wares with those at on and offline competitors. There are already a handful of apps for consumers to scan barcodes and compare prices in an instant. Will they bring about a shopping universe in which everybody is forced to charge the same?

I don’t think so. The new technology might complicate somewhat retailers’ pricing strategies. But it does nothing to undermine the key principle underlying differential pricing, what economists call price discrimination: there are people who care a lot about finding the cheapest deal. There are others who care much less. Retailers can still make a mint by figuring out how to separate the former from the latter.

I know I can go to a play for less if I choose the Wednesday matinee, or if I stand in line for an hour at the discount booth near the office in Times Square. I could probably buy fettuccine for less if I didn’t throw out the piles of coupons that somebody dumps at my door.  I don’t, because saving 50 cents on a pack of fettuccine isn’t worth the trouble of managing the coupons.

Coupons, matinees and discount booths are tools with which grocery stores and theater producers separate the price-conscious from the rest. It allows them to offer their goods cheaply to those who would not buy them at a higher price, while still charging more to those who don’t care as much. Using these tools the pasta maker can sell a box of linguine to cost-conscious shoppers for $1.50 while getting $2.50 from people like me, who have less time to shop around or clip coupons.

 To be sure, the new barcode scanners might make it more difficult for retailers to hoodwink consumers. But price discrimination will survive. Those who can’t be bothered to flip on the smart-phone, read the barcode and drive four miles to the nearby store where the gadget of our choice is $100 cheaper, will still willingly pay more.

 These scanners might make price discrimination easier. As consumers use them to shop, they will provide companies and retailers valuable information about their shopping preferences, including their sensitivity to price. This information will allow for even better targeted marketing, and pricing than before.

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One Response to The value of comparing prices

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