Wednesday, April 05, 2006

Dynamic Pricing

In his marketing blog, Seth Godin asks about dynamic pricing.
Why doesn't fresh fish cost more than the same fish a day later? bowling a few cents less when it's not so crowded? movie tickets more on the day a movie debuts? why don't computers with a three-year obsolence cycle have predictable pricing that starts high and gets near cheap just before the new upgrades?
I first came upon this idea in Kevin Kelly's book New Rules for the New Economy (available online).
A head of lettuce today ... does not contain any financial information beyond a price sticker. Once applied, that price is fixed, too. It doesn’t change unless a human changes it. The economic consequences of lettuce sales elsewhere, or a change in the general global economy do not affect the head of lettuce itself. Instead, lettuce-related information flows through wholly separate channels—news programs or business newsletters—that are divorced from the lettuce itself. The lettuce is economically inert.

The realm of the animated is different. It’s vastly interconnected. In this coming world a head of lettuce carries its own identity and price, displayed perhaps on an LED slab nearby, or on a disposable chip attached to its stem. The price changes as the lettuce ages, as lettuce down the street is discounted, as the weather in California changes, as the dollar surges in relation to the Mexican peso. Traders back in supermarket headquarters manage the "yield" of lettuce prices using the same algorithms that airlines use to maximize their profits from airline seats. (An unsold seat on a 747 is as perishable as an unsold head of lettuce.)
[Source: Chapter 5]

Kelly describes this as animating the lettuce, following the principle of "Feed the Web First". (Presumably Webb's Wonder 2.0.)

This kind of animation calls for new and more complex kinds of system interconnection, and new and more complex kinds of commercial arrangement. Shifting the enterprise further into the real-time.

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