Wednesday, June 11, 2008

Complexity-Based Pricing

In this post, prompted by Gordon's Notes on Complexity and Mobile Phone Plans, I want to talk about Complexity as a Weapon.

The term "Complexity as a Weapon" only occurs a few times on the Internet. Ten years ago, Scott Bradner wrote a column for ComputerWorld called Complexity as a Weapon. He was referring mainly to large software organizations resisting simple standards, as a tactic for achieving an advantage over smaller organizations with fewer resources. In a discussion with Russell Ackoff on Why few organizations adopt systems thinking, Jim Leemann talks about complexity as a tactic for resisting any kind of positive change. And an organization called Focus on the Global South accused oil companies of using complex accounting solely in order to reduce tax liability (Destroy and Profit, pdf).

But Gordon's Notes discusses Complexity-as-a-Weapon in the context of service pricing, where complexity is designed to prevent service consumers optimizing their service costs (so-called ninja shopping), as I indicated in my review of the Support Economy.

"Providers retaliate with an increasingly impenetrable array of extras, excesses and surcharges, which aim to recoup profit margins while making accurate price comparison near-impossible."

In Manufactured Uncertainty, the Farnam Street blog tracks how the practice of unbundling (for the purpose of making it harder for consumers to compare prices) has spread from mobile phone companies to airlines.

Excessive complexity of this kind is ultimately self-defeating: it adds to everyone's transaction costs, and erodes the value and viability of the service itself.

See also Billing Blunders

1 comment:

John Gordon said...

I enjoyed reading the commentary Richard. Very nice connection to the strategic use of complexity in other settings.

I should add that dominant vendors may resist common standards because they reduce customer lock-in, they can do this even without a great deal of complexity.

(John Gordon)