Will more customer data mean the end of discounting?
Just like Google before it, Uber has changed our behavior so much that it has become a verb. But as Garrett Van Ryzin, head of marketplace optimization advanced development for Uber, explained in a breakout session at Retail’s BIG Show, Uber didn’t create a technological revolution in transportation; it revolutionized how the transportation marketplace is organized. Van Ryzin discussed how connecting all the players with the right information and technology led to a more efficient marketplace that creates more value for customers. But the thing about Uber that irks so many — surge pricing — is also one of the things that makes the system work so well.
“Uber wouldn’t be Uber without dynamic pricing. It’s what makes the service economical when demand is low, and reliable when demand is high,” Van Ryzin said. “That reliability is key to our service, and it’s dynamic pricing that makes that possible.” That’s because surge prices incentivize drivers, increasing the supply when needed so that customers can get a ride when they need one. But that doesn’t make it popular.
“People don’t like surge pricing … but it’s absolutely essential for the Uber service,” Van Ryzin said.
How can the Uber model be applied to retail? Different customers may place different value on an item; retailers use one price, then end up discounting across the board — leading to lost profits. If retailers could customize prices for those who value items more and those who value them less, it creates a win-win: a customer surplus and higher profits.
But in order to understand what value an item has to a customer, retailers need more data about them. A woman wandering into a shop could decide a designer handbag she loved just wasn’t worth the price and then wander out — all without retailers getting any feedback.
Samantha Zirkin, founder and CEO of Point 93, is out to change that with a solution that combines mobile technology with marketplace engineering. Point 93 allows customers to tell retailers how much they’ll pay for items and how long they’ll wait for them by using their own mobile device in stores as well as through an icon on a retailer’s website. Zirkin says the technology enables a conversation between customers and retailers that “eradicates the need for sales and discounting.” Rather than discount across the board at 30-40 percent at a given time, for example, retailers could engage customers willing to pay 20 percent off exactly when they want to.
Once more data is available and accessible, a new door opens to creating value for customers. Jennie Baik, CEO and co-founder of Orchard Mile, said that data can provide more than just the ability to offer discounts at the right time to the right person. It can deliver real insights into how to provide things of value for customers — perhaps beyond dollars — such as exclusive access to products or special invitations to events with designers.
“We need to stop having first dates with our customers. We need to learn more about them,” Baik said. “At that point, you can ask yourself, ‘What is the value set of this consumer, and how does my brand mean more to them?’”
Charging different amounts for the same thing based on location or demand is certainly not a new concept, but customized pricing and one-to-one offers, just like Uber’s surge pricing, will likely make consumers and retailers uncomfortable. However, learning how to apply the technology and data could also lead to a better customer experience and shared value, even while potentially upending the entire traditional retail sales cycle.