The Price is Right — Or is It?

The Wall Street Journal: “A simple mathematical error leads shoppers to make mistakes when evaluating offers that promise to save them money. Sometimes they inadvertently pick the priciest option. Sometimes they overestimate the benefit of a bargain. And sometimes they don’t recognize that competing promotions offer identical savings. The problem involves percentages.”

“Instead of comparing unit prices, shoppers tend to judge offers based on the size of the benefit. Getting 50% more of a product must be better than knocking 33% off its cost, right? Wrong. The savings are identical, but on the fly, even savvy shoppers make mistakes … Consider a pound of coffee beans that normally costs $15. If a shopper receives 50% more free, the price is $5 for each half-pound. A discount of 33% reduces the original cost to $10, which is also $5 per half-pound.”

“One of the most common ploys used to sway consumers is the double discount. A 40% discount on a $1,000 suit drops the price to $600. Marking the suit down twice, first by 20% and then by an additional 25% decreases the cost to $800 before shrinking it to $600. The deals are identical, but the double discount feels more generous … To test responses to offers of discounts or bonuses along with shoppers’ ability (or willingness) to calculate percentage change, .. several experiments revealed that consumers generally favor product bonuses over price discounts, reduced quantities over increased prices and double discounts over single discounts.”

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Slow Sizzle: Raising The Peak Steak

The Wall Street Journal: “There are cows that eat only grass and roam free. There are Kobe cattle, whose muscles are massaged for months to tenderize the meat they eventually produce. And then there are José Gordon’s oxen. An animal lucky enough to be part of the restaurateur/rancher’s herd in northwestern Spain gets to laze about in mountain pastures redolent of thyme and other fragrant herbs. It is stroked with metal brushes. It might even get a pedicure … the cattle in Mr. Gordon’s herd are allowed to live for years, sometimes close to their life spans of nearly two decades, before being turned into steaks for his restaurant.”

“Mr. Gordon, proprietor of Bodega El Capricho in Spain’s Castille-Leon region, believes he knows when an animal in his herd has finally reached its peak condition and is ready for the abattoir. He decides this by the look and feel of the animal. It’s a matter of instinct, Mr. Gordon says. A few weeks too long or too short can mean less-than-perfect meat … The current king of Mr. Gordon’s herd is 16-year-old Divino, a majestic animal of 3,700 pounds, nearly triple the weight at which most beef cattle go to market. Mr. Gordon has nicknamed him El gran jefe—the big boss—for his haughty manner.”

“Such care doesn’t come cheap. Mr. Gordon estimates each animal costs nearly $3,000 a year, in a combination of its feed, hoof care and vet bills, which is at least twice the cost of traditional ranching. A steer like Divino, who will probably go to slaughter this year, will have cost more than $30,000 to raise. Mr. Gordon says he breaks even on most animals, charging €120 a kilo (about $63.50 a pound) for a premium chuleta steak that he says is more delicate than regular beef … Mr. Gordon admits he loses money with some of the animals he keeps longest.” He comments: “I believe that what I do is mystical, magical. It goes beyond profitability. This is my work and my world. I would never change it.”

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Step Right Up: Hot Dog Water

Global News: Thousands of people packed Vancouver’s Main Street on Sunday to take in the annual Car Free Day festival. And among the food vendors, merchant stands and music was one stall that stood out, inviting the public to enjoy a chilled, refreshing, healthful glass of Hot Dog Water … The drink’s impressive marketing advertises it as gluten-free, Keto diet-compatible, rich in sodium and a source of electrolytes. It also promises to help the drinker lose weight, increase brain function and look younger.”

“A bottle of Hot Dog water would set the adventurous water fan back $37.99, while a Father’s Day special’ will get you the bargain price of $75 for two. Hot Dog Water lip balm, breath spray and body fragrance were also for sale.”

“Tucked into the fine print at the bottom of the Hot Dog Water sales pitch is this: Hot Dog Water in its absurdity hopes to encourage critical thinking related to product marketing and the significant role it can play in our purchasing choices.”

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Disney Tries ‘Dynamic’ Pricing

The Wall Street Journal: “After raising some ticket prices for its theme parks by more than 20% over the past five years, Walt Disney Co. will set a new benchmark this week when it offers die-hard fans the chance to attend a six-hour preview of a new attraction at Disneyland—for $299. Even for fans used to high prices, the $50-an-hour sneak peek at Pixar Pier on Friday, a day before the attraction officially opens, breaks new ground.”

“Raising prices—currently around $100 on average days and more than $120 during ‘peak’ times around holidays—could mitigate tourist appetite and increase Disney’s profits. The company, however, is wary of appearing to gouge customers, according to theme-park executives and analysts, and going against founder Walt Disney’s vision of affordable family entertainment.”

“Disney parks executives are working on adopting a dynamic pricing model similar to airlines, in which prices fluctuate depending on when a ticket is purchased, this person said. Disney already has introduced a limited version of dynamic pricing to its parks, charging a range of prices based on three categories of dates: ‘value,’ ‘regular’ and ‘peak.’ Prices range from $97 to $135 for Disneyland and between $102 and $122 for Walt Disney World.”

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Lightbox Jewelry: Lab Diamonds via DeBeers

The Washington Post: “De Beers, the diamond giant that for years has promoted gemstones as pricey and precious, said it will begin selling man-made diamonds that cost about a tenth of the price of a mined gem. The line of pink, blue and white laboratory-grown diamonds, which De Beers will sell under a new brand, Lightbox Jewelry, is designed to persuade shoppers to think of synthetic diamonds as a ‘fun piece of fashion jewelry’ instead of a lifelong investment, executives said. Prices will start at as low as $200 to appeal to a new generation of shoppers.”

“The lower-priced jewelry is as much about changing consumer habits and preferences as it is about economics, industry experts say. Today’s 20- and 30-somethings — bogged down by heavy student debt loads and stagnant wages — have less spending power than their predecessors did, but they have different values, too: A recent study by De Beers found that millennials would rather splurge on overseas holidays, weekend getaways and electronics than on diamonds.”

“Lab-grown diamonds — which are created in hot, pressurized chambers over weeks, instead of a billion years underground — have been growing in popularity as Americans spend less on traditional diamonds. The stones are increasingly marketed to younger shoppers as a cheaper, ethically sourced alternative to mined diamonds. But their chemical makeup is the same (all diamonds are made of just one element: carbon), and experts say they are indistinguishable to the naked eye.”

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Sam’s Club, Walmart & Parental Pricing Supervision

Business Insider: “Sam’s Club, which is owned by Walmart, has for years told customers in stores and on social media that it won’t match Walmart’s prices, or any competitor’s prices … This is highly frustrating for customers like Craig Barnes, a Sam’s Club member for more than two decades, who said the warehouse chain should at least match the prices of its parent company if it’s charging members fees to shop there.”

“Barnes was recently shopping for a copper grill mat at his local Sam’s Club store in Torrance, California, and discovered that the price, at $8.98, was 11% higher than at Walmart. He also found that a Kumho car tire cost $84.66 at Sam’s, and $73.17 at Walmart.”

When Business Insider contacted Sam’s Club about these complaints, the company said that the price-matching policy needed clarification’.” Spokespersona Carrie McKnight “said Sam’s Club doesn’t have a specific policy enforcing price-matching, but that it empowers its store managers to use their best judgment in providing refunds or price-matching on certain items. For identical items carried at both Walmart and Sam’s Club, the club chain should match prices, she said … If customers are denied price matching on identical items by their local club, they should contact customer service or reach out to Sam’s Club on social media to resolve the matter, she said.”

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Retail Math: Ladder of Causation

The Wall Street Journal: “Suppose, for example, that a drugstore decides to entrust its pricing to a machine learning program that we’ll call Charlie. The program reviews the store’s records and sees that past variations of the price of toothpaste haven’t correlated with changes in sales volume. So Charlie recommends raising the price to generate more revenue. A month later, the sales of toothpaste have dropped—along with dental floss, cookies and other items. Where did Charlie go wrong?”

“Charlie didn’t understand that the previous (human) manager varied prices only when the competition did. When Charlie unilaterally raised the price, dentally price-conscious customers took their business elsewhere. The example shows that historical data alone tells us nothing about causes—and that the direction of causation is crucial.”

“Machine-learning systems have made astounding progress at analyzing data patterns, but that is the low-hanging fruit of artificial intelligence. To reach the higher fruit, AI needs a ladder, which we call the Ladder of Causation … To reach the higher rungs, in place of ever-more data, machines need a model of the underlying causal factors—essentially, a mathematics of cause and effect.”

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Slow Tickets: Swift ‘Reputation’ for Empty Seats

The Wall Street Journal: “The biggest pop star’s current concert tour isn’t a sellout. And that’s a good thing, according to some in the concert industry. Taylor Swift’s ‘Reputation’ tour, which kicked off last week in Glendale, Ariz., is a test case in squeezing out scalpers and capturing more profits from ticket sales. The strategy … is to use aggressive pricing to limit the ability of scalpers to purchase tickets and later sell them at higher prices. In addition, a program from Ticketmaster is aimed at giving passionate fans earlier access to tickets at discounted prices.”

“One downside to the plan: empty seats at some of the roughly 36 stadiums on Ms. Swift’s 53-date tour. However, even if those seats remain unsold, the ‘Reputation’ tour already has grossed more on its North American leg than Ms. Swift’s previous tour in 2015 … For decades, artists and their teams have claimed ‘sold out’ shows as a badge of honor showing the high demand for their music. The new approach is raising questions in the music industry about whether an end is nearing for the days of instant sellouts.”

“The best seats—some with added VIP perks—cost $800 to $1,500 at face value for a given show, with those immediately behind them at $250 each. Spots in the back of the house go for about $50.”

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Stadium Goods: Getting Kicks From Luxury

The New York Times</strong>: “To walk into the 3,000-square-foot Stadium Goods store in SoHo is to be confronted by rows and rows of pristine, shrink-wrapped athletic footwear. Look closely and you might be a little stunned by the price tags. On a recent afternoon, for instance, a pair of white Nike Jordan 1’s by the fashion designer Virgil Abloh (Off-White, Louis Vuitton) originally priced at $190, was selling for $2,750 … Nearby was a rare pair of Adidas PW Human Race NMD TR, designed by the musician Pharrell Williams. Price tag: $12,350.”

“Sneaker fanatics have been around for decades, with swaps and buys largely happening on eBay or as personal transactions. But it’s only in the last few years that the reseller market has accelerated and gone sharply upscale. John McPheters, who co-founded Stadium Goods with Jed Stiller, says the shift has been driven by ‘men who are now learning from childhood how to treat fashion as a sport — the way that women have always treated fashion’.”

“The partners believe the future of sneaker retail will be a hybrid model combining traditional channels and aftermarket selling. ‘We’re a microcosm of what’s hot,’ Mr. Stiller said, noting that in the sneaker world what’s trending is not necessarily the newest item. ‘Where a lot of retailers are dependent on what brands are releasing at the moment, we’re not. Ninety-five percent of our stock are styles that are no longer on the market’.”

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H&M Stores Buy Into Big Data

The Wall Street Journal: “H&M, like most retailers, relies on a team of designers to figure out what shoppers want to buy. Now, it’s using algorithms to analyze store receipts, returns and loyalty-card data to better align supply and demand, with the goal of reducing markdowns. As a result, some stores have started carrying more fashion and fewer basics such as T-shirts and leggings … H&M’s strategy of using granular data to tailor merchandise in each store to local tastes, rather than take a cookie-cutter approach that groups stores by location or size, is largely untested in the retail industry, consultants say.”

“The H&M store in Stockholm’s swanky residential Östermalm neighborhood hints at how data can help. The store used to focus on basics for men, women and children, with managers assuming that was what local customers wanted. But by analyzing purchases and returns in a more granular way, H&M found most of the store’s customers were women, and fashion-focused items like floral skirts in pastel colors for spring, along with higher-priced items, sold unexpectedly well.”

“With the help of about 200 data scientists, analysts and engineers—internal staff and external contractors—H&M also is using analytics to look back on purchasing patterns for every item in each of its stores. The data pool includes information collected from five billion visits last year to its stores and websites, along with what it buys or scrapes from external sources … The chain uses algorithms to take into account factors such as currency fluctuations and the cost of raw materials, to ensure goods are priced right when they arrive in stores.” Nils Vinge of H&M comments: “The algorithms work around the clock and adjust continuously to the customers’ ever-changing behavior and expectations.”

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