Speaker 1: I'm Bethany McLean and this is making a killing interviews,
Speaker 1: exploring the headlines you thought you understood and finding the
Speaker 1: lessons we can all learn from them. Already in this series,
Speaker 1: I've spoken with Sehiel Patel about Netflix, Mike Isaac about Uber,
Speaker 1: and Peter Robeson about Boeing. I'm at Bethany Mactwelth on Twitter.
Speaker 1: So I have to admit I always thought that I,
Speaker 1: the consumer had the power in online shopping. I thought
Speaker 1: I could outsmart any seller. But now I'm beginning to wonder.
Speaker 1: Just consider this recent headline in the Atlantic how online
Speaker 1: shopping makes suckers of us all, Oh dear. The piece
Speaker 1: asks could the Internet, whose transparency was supposed to empower consumers,
Speaker 1: be doing the opposite. This worries me as a working mom.
Speaker 1: I buy everything, and I mean everything online. I don't
Speaker 1: like to think that I might be losing. There are
Speaker 1: broader implications to this question too. Rob Kaplan, president of
Speaker 1: the Federal Reserve Bank of Dallas, recently positive that continued
Speaker 1: low inflation, something that is confounding economists, might be because
Speaker 1: the Internet is bringing consumers so much transparency about the
Speaker 1: cost of everything that businesses have to perpetually match or
Speaker 1: even discount prices to win sales. It may be that
Speaker 1: business pricing pressure has been fundamentally reduced as a result
Speaker 1: of technology, Kaplin told a recent conference. But if that's true,
Speaker 1: and I'm now questioning whether it is, it appears that
Speaker 1: business isn't going down without a fight. Let's back up. So,
Speaker 1: in what are beginning to seem like the old days,
Speaker 1: there was a one price system, meaning when you walked
Speaker 1: into a store to buy something, that was the price
Speaker 1: for you and for any other customer who would happen
Speaker 1: to walk in. It turns out there's a whole history
Speaker 1: as to how the one price system came to exist
Speaker 1: and a tail in why it's going away and being
Speaker 1: replaced with something retailers called dynamic price. What Jerry you
Speaker 1: see Him explains in his recent Atlantic piece is that
Speaker 1: this new system of dynamic pricing most closely resembles high
Speaker 1: frequency trading on Wall Street. Prices are never set to
Speaker 1: begin with. In this new world, they can fluctuate from
Speaker 1: hour to hour and even minute to minute, a phenomenon
Speaker 1: familiar to anyone who has put something in her Amazon
Speaker 1: cart and bet alerted to price changes. While it's at there.
Speaker 1: Of course, it's not just Amazon. An investigation by a
Speaker 1: local TV station found that Target was offering different prices
Speaker 1: on its app depending on where customers were located inside
Speaker 1: or outside of an actual Target store. Jerry also writes
Speaker 1: this about us. They are content to be fooled into
Speaker 1: paying more if they can keep the belief that they're
Speaker 1: paying less, that they have agency and agility to find special,
Speaker 1: unbeatable deals only for them. Wow. I thought I was
Speaker 1: doing just that, But maybe I am, because it's indisputably true.
Speaker 1: At the very same time that we, the consumers, are
Speaker 1: also getting significantly smarter. Gone are the days where the
Speaker 1: sellers of goods at all the inside info and control,
Speaker 1: or even market leadership. In many cases, you can compare
Speaker 1: prices in real time. So if sellers are getting smarter
Speaker 1: and buyers are also getting smarter on the same exponential
Speaker 1: curve fueled by technology, well who's winning. I'm delighted to
Speaker 1: have Jerry, you see him here with me to answer
Speaker 1: all those questions and more. Jerry, who is now a
Speaker 1: contributing editor at the Atlantic, as a longtime business journalist.
Speaker 1: He and I worked together at Fortune back in the
Speaker 1: glory days. Of the nineteen nineties and early two thousands.
Speaker 1: So we've known each other for oh, I don't want
Speaker 1: to count how long, And amazingly enough, we now both
Speaker 1: live in Chicago, so this episode is being recorded in
Speaker 1: the Windy City. So we have to start with what
Speaker 1: happened to the price of pumpkin pie spice as Christmas
Speaker 1: two fifteen approached? How did you zero in on pumpkin
Speaker 1: pie spice? I sort of stumbled upon it. I was
Speaker 1: looking through a bunch of prices, three charts of different
Speaker 1: products on Amazon, and this kind of thing didn't exist before.
Speaker 1: But there's a few services ones called three camels that
Speaker 1: literally you can see the fluctuations of a price day
Speaker 1: to day, hour to hour, over the last month, over
Speaker 1: last year. And I had no idea about this until
Speaker 1: I read your piece. By the way, some of these
Speaker 1: you know, charts, it's like looking down in a stock chart.
Speaker 1: That one just struck me as funny because it's a
Speaker 1: seasonal ingredient. We all do it and we all know
Speaker 1: what it is. So how did you get interested in
Speaker 1: this story? Anyway? What made you decide to pursue this? Well,
Speaker 1: it's become kind of a commonplace that as consumers were
Speaker 1: more empowered than ever with data. We can go to showrooms,
Speaker 1: we can go to Best Buy and see products that
Speaker 1: we intend to buy elsewhere. We can know the price
Speaker 1: of anything anywhere at any given time through technology. But
Speaker 1: I and my editor at The Atlantic started to notice
Speaker 1: there were some weird things going on with Amazon's seeing strategies.
Speaker 1: At the same time, we also noticed that Amazon had
Speaker 1: been hiring a lot of economists, and really top flight
Speaker 1: economists who would sort of disappear into the Amazon world,
Speaker 1: and so it was kind of like going down a wormhole.
Speaker 1: We looked at what's happening with price online, and the
Speaker 1: deeper I got into it, the more I realized that
Speaker 1: the whole notion of price that's something that is a
Speaker 1: fixed price out there, that it's set, you know, how
Speaker 1: much does it cost is becoming sort of an outdated
Speaker 1: questioned the fluctuations that retailers have learned to do based
Speaker 1: on what they know about our shopping habits. For instance,
Speaker 1: at four pm in the afternoon, we're all at work,
Speaker 1: we've had lunch, we get kind of lazy, and they
Speaker 1: raise their prices because we just get less discriminating at
Speaker 1: that hour. So you'll see this uptick in the morning,
Speaker 1: they'll then like lower the price because we're more meticulous.
Speaker 1: I think this whole idea is terrifying, and I want
Speaker 1: to come back to the notion of the royal Amazon
Speaker 1: played with this, but where there's a character in your
Speaker 1: story who's really fascinating This guy Guru Harri harror on
Speaker 1: how did you find him? And who is he? He
Speaker 1: would be what you call sort of an arms dealer
Speaker 1: in this an arms dealer, and in this contest is
Speaker 1: sort of consumer and retailer, or you can think of it.
Speaker 1: He says, it's more of like a three way battle.
Speaker 1: There's Amazon where he used to work, and he's one
Speaker 1: of the guys who's set up the system that lets
Speaker 1: other people sell their stuff on Amazon third party sellers,
Speaker 1: and he started this company called Boomerang Commerce that basically
Speaker 1: other retailers used to match Amazon's pricing algorithms. And it
Speaker 1: was kind of my window into like, you know, it's
Speaker 1: very hard to you can't interview an algorithm, but I
Speaker 1: went out there to Californi and basically tried to you
Speaker 1: found a human algorithm essentially hand grew Harry. Yeah, and
Speaker 1: he showed me this dashboard and would. It had was
Speaker 1: this is what a retailer sees, and it had a
Speaker 1: bunch of rules you can put in, like if Amazon
Speaker 1: moves its price down, we respond by moving our price
Speaker 1: down ten percent until it gets too costs or something
Speaker 1: like that. These were what you're called guardrails, and if
Speaker 1: you don't put those in, things can get out of hand.
Speaker 1: There was there was one book that because of two
Speaker 1: algorithms interacting with each other, the price got driven up
Speaker 1: to twenty three million dollars at one I wish, I
Speaker 1: wish that were one of my books. Well, speaking of whigs.
Speaker 1: Before coming on here, I went in and checked out
Speaker 1: the price history of some of your books. Oh well,
Speaker 1: it's really really interesting and I can't discern any pattern.
Speaker 1: It's just one of your books. Today. It's offered to
Speaker 1: ask prices seventeen ten, that's respectable. It's been as high
Speaker 1: as thirty five dollars for one day, like maybe four
Speaker 1: or five years ago. It is available for dollars twenty
Speaker 1: three cents, which I think someone just stay wow, that
Speaker 1: is crazy. Okay, but wait, come back to this notion
Speaker 1: that it's a three way battle. It's not just a
Speaker 1: battle between the consumer and the retailer. But your guru
Speaker 1: says that it's actually a three way battle. There's the consumers,
Speaker 1: there's the retailer, and there's Amazon. Amazon just has so
Speaker 1: much data at their disposal, and with that data, it
Speaker 1: exerts a gravitational pull of all this talent. These really
Speaker 1: really top level economists are going there and not only
Speaker 1: using the data to say, like what can we see about? Basically,
Speaker 1: you know where we should price things and when what hour.
Speaker 1: In some cases it seems like personalize it to your
Speaker 1: own shopping history. If you came from a bargain hunting
Speaker 1: website and they think you're sort of a bargain hunter,
Speaker 1: they will sometimes offer you a lower price. Some studies
Speaker 1: show Amazon says it doesn't do this. Well, that's what
Speaker 1: I wanted to push on. Amazon says that it's price
Speaker 1: changes are quote not attempts to gather data on customers
Speaker 1: vending habits, but rather they're just trying to give shoppers
Speaker 1: the lowest price out there. What do you think about that?
Speaker 1: A few years back they did admit to running price experiments.
Speaker 1: Price experiments. That's a scary phrase, yes, and so it's
Speaker 1: kind of weird to think that in buying you know,
Speaker 1: a seasonal pie ingredient, pumpkin spice, you might being part
Speaker 1: of a social experiment. And ECON one on one, if
Speaker 1: you go back, they had the concept of elasticity of demand. Basically,
Speaker 1: if you raise the price, how much to sales fall off?
Speaker 1: But retailers for most of existence have just been just
Speaker 1: kind of had to guess. Now they can actually, well,
Speaker 1: let's try at this level, what's measured of demands? What's
Speaker 1: the optimal? So we've moved from ECON one on one
Speaker 1: And I never took an ECON class to John Nash
Speaker 1: as a beautiful mind and game theory, right, Okay, that's
Speaker 1: that a way to think about it. Yes, they're literally
Speaker 1: using game theory and some of their and some of
Speaker 1: their models. Let's back up and go back to some
Speaker 1: pricing history, which you lay out in your story in
Speaker 1: such an interesting way. But how did the price take
Speaker 1: come into being in the first place? Well, this is
Speaker 1: an interesting question, and as I was reporting this story,
Speaker 1: I thought, well, prices have always been fixed, and I
Speaker 1: thought it was that true, And I went back and
Speaker 1: it turns out not true. Price tag was invented sometime
Speaker 1: in the eighteen sixties. Probably it's credited to John Wannamaker.
Speaker 1: Wannamakers in Philadelphia is one of the first big department stores,
Speaker 1: and he was a Presbyterian, but operating in a Quaker city,
Speaker 1: and Quakers, including another Quaker, was rolling h Macy of
Speaker 1: Macy's didn't believe in offering different prices to different people.
Speaker 1: They thought it would because they thought it was immoral.
Speaker 1: They thought it was immoral interesting, so Wannamaker opened his
Speaker 1: quote unquote Grand Depot onto the principle he called one
Speaker 1: price to all, no favoritism, and this was soon copied
Speaker 1: not for moral reasons, but for economic reasons by others.
Speaker 1: In the very beginning of department stores, basically they tried
Speaker 1: to train everyone in the art of haggling, which is
Speaker 1: how everything was done up to that point, and in
Speaker 1: fact there was no price tags on goods. Sometimes they
Speaker 1: would have cryptic symbols that would the salesman or saleswoman
Speaker 1: know what the cost of the good was and what
Speaker 1: should their sort of walk away point be, and only
Speaker 1: they could decipher these symbols. But as these stores they
Speaker 1: found it basically impossible to train thousands of people in
Speaker 1: the art of haggling. Just as they scaled up and
Speaker 1: became huger. It allowed them to advertise fixed prices, and
Speaker 1: newspapers allowed them to higher floor people. So price tag
Speaker 1: was a move toward a more efficient economy in a sense,
Speaker 1: at least at that time. You know, in doing that,
Speaker 1: retailers sort of gave up a little bit of their
Speaker 1: power to kind of extract the last farthing that a
Speaker 1: shopper might be willing to give up on a given day. Right,
Speaker 1: but maybe they made it back on the shopper who
Speaker 1: was not so intent or skilled at extracting the last
Speaker 1: farthing right right, right, which brings us back a little
Speaker 1: bit to where we are today. So what does this
Speaker 1: concept now from moving from the fixed price tag to
Speaker 1: personalized pricing? How would you explain that concept? I would
Speaker 1: explain it as there was a sort of a truce
Speaker 1: that reigned after the invention of the price tag that
Speaker 1: basically between the consumer and retailers. In fact, there was
Speaker 1: a French sociologist who had a theory that the marketplace
Speaker 1: was a battle and a price was the negotiated truce
Speaker 1: in the outcome. And there was a few sort of
Speaker 1: asterisks to this truce. So like you could clip coupons,
Speaker 1: you know, as a way, if you were more motivated,
Speaker 1: companies differentiated higher end things lower end things. But basically
Speaker 1: the people who broke the truth are us, the consumer shoppers.
Speaker 1: And I was at a shoe store the other day
Speaker 1: and a woman said, you know, yesterday someone was in
Speaker 1: here and they were trying on a shoe while they
Speaker 1: were sitting in there, went online and bought the shoes
Speaker 1: on AMTMS and just walked out of the store and
Speaker 1: walked out of the store that brazen. Did the person
Speaker 1: atly say sorry to waste No, not even apology. Oh man,
Speaker 1: I'm feeling sorry for retailers right now. So, I mean,
Speaker 1: this has a lot you know, just sort of what's
Speaker 1: going on in storefronts right now and what they call showrooming,
Speaker 1: walking around with armed with all this information basically sort
Speaker 1: of strips a lot of places of their pricing power
Speaker 1: to ask anything above what is the lowest rate out there.
Speaker 1: So you see retailer's response as having been driven by necessity.
Speaker 1: This breaking of the truth began with consumers, and now
Speaker 1: retailers are fighting back. Is that the right way to
Speaker 1: think about it? Essentially, yes, And that they're staring back
Speaker 1: through the screen and comparison shopping us and trying to
Speaker 1: figure out what is our walk away point? Because there's
Speaker 1: something also an economics called the consumer surplus. Consumer surplus
Speaker 1: is basically money you would have been willing to spend
Speaker 1: if the price had been higher, but you didn't have
Speaker 1: to spend it because the price was set at whatever,
Speaker 1: seven dollars. But the consumer surplus is like if you
Speaker 1: would have been willing to pay twelve dollars, that's five
Speaker 1: dollars right there. Does the surplus go to the consumer's
Speaker 1: wallet or does the surplus just get spent elsewhere because
Speaker 1: the consumer sees it as free money, just get spent elsewhere? Right? Yeah,
Speaker 1: how much of a surplus is it? Actually? Right exactly?
Speaker 1: Retailers are now trying to find ways to make more
Speaker 1: of the surplus their own. So one expert said this
Speaker 1: that in five to ten years, everything you buy will
Speaker 1: be based on personalized offers everything. Do you think that's
Speaker 1: true or do you think that's an overstatement? You know,
Speaker 1: as a great question, and I think in reporting this
Speaker 1: the issue of fairness, you know, this comes up. You know,
Speaker 1: if you're sitting on an airplane and the person next
Speaker 1: to you is paid less, there's an element in us
Speaker 1: that kind of objects to that. That said, someone pointed
Speaker 1: out fairness is sort of a social construct, and it's
Speaker 1: possible that our notions of this could change. I mean,
Speaker 1: for instance, with stocks, if someone bought Microsoft stock at
Speaker 1: forty and you bought it at ninety, you don't hold
Speaker 1: anything again, right, right, But going back to your pricing
Speaker 1: Macy right, who thought it was immoral? How do you
Speaker 1: think about that? Do you think it's immoral for consumers
Speaker 1: to pay different prices? For instance, if you buy a Mercedes,
Speaker 1: should the diapers you're buying for your kid costs more
Speaker 1: than the diapers somebody who drives Undai is paying. I
Speaker 1: don't know. I honestly don't know there is. I think
Speaker 1: if there's a degree of transparency what's going on, then
Speaker 1: I think maybe it's fair where I think some of
Speaker 1: the things that really raise my eyebrows, or where they're
Speaker 1: doing things and profiling you in ways based on the
Speaker 1: fact that you have been browsing elsewhere that some retailers
Speaker 1: have been accused of doing this. But can it be
Speaker 1: fair given that when we're talking about retailers manipulating prices,
Speaker 1: we're not really talking about human head buyers manipulating prices.
Speaker 1: We're talking about algorithms manipulating prices based on big data, right,
Speaker 1: So how transparent can it be? Doesn't that fly in
Speaker 1: the face of transparency? Yes, yes, and and yes, And
Speaker 1: actually what kind of troubles me is that when some
Speaker 1: of these sort of irregularities surface, Amazon and other places
Speaker 1: can very easily say we're sorry, there was flying on
Speaker 1: the oitment. There was something bad with the algorithm, the
Speaker 1: algorithms at fault. It was unintended, and we will never know.
Speaker 1: Maybe it was, maybe it wasn't, And it almost doesn't
Speaker 1: matter if it was unintentional. It's a little bit like
Speaker 1: the malfunctioning robot. Hell, right off, how is malfunctioning? Doesn't
Speaker 1: matter why exactly? When reading through this, I was fascinated
Speaker 1: to find that sometimes Yeaho's Finance did a piece on
Speaker 1: how clothing prices are affected by this too, and address
Speaker 1: that's available in a size small might cost more and
Speaker 1: a size large, And that seems maybe there's a lot
Speaker 1: of big data going into why that's happening. But doesn't
Speaker 1: that just seem wrong on the surface, or are we
Speaker 1: just are we just living in an old construct? Well, interestingly,
Speaker 1: the technical economics term for this is price discrimination, which
Speaker 1: economists use not in the way that you and I
Speaker 1: mean discrimination, but it's a great question, like is this
Speaker 1: basically discrimination? There was three researchers from Spain who did
Speaker 1: an interesting study where they set up three different sort
Speaker 1: of phony personas based in different places in the US. Basically,
Speaker 1: these were like dummy terminals where one of them just
Speaker 1: did a whole bunch of bargain shopping for you know,
Speaker 1: a couple of weeks, one of them looked at high
Speaker 1: end goods, and the third was somewhere in between. And
Speaker 1: they found indeed that these people got offered different prices
Speaker 1: even when they typed in on the search engine, like
Speaker 1: different products would be shown to them. Wow. So I
Speaker 1: think there is something kind of a haunting and spooky
Speaker 1: about the unknowability. It's almost sort of like Heisenberg's uncertainty.
Speaker 1: If you can't know where the electron is just by
Speaker 1: the very fact you're looking at it. In some cases,
Speaker 1: you know, the price could really not exist until you
Speaker 1: look at it, and the act of looking at it
Speaker 1: sort of creates the price. So I think there's going
Speaker 1: to be We're gonna have to think about this a
Speaker 1: lot that's actually fascinating because it all does once again.
Speaker 1: I mean, Heisenberg's uncertainty principle couldn't be more removed from
Speaker 1: your concept of transparency. Right, The price not existing until
Speaker 1: you look at it is again the opposite of transparent.
Speaker 1: And that's the thing we all feel like if we
Speaker 1: could just understand why right exactly? And here's the thing is,
Speaker 1: there's studies showing that even when people are shown their
Speaker 1: own irrational biases, that they still don't adjust, like we
Speaker 1: are just suckers for seeing twenty percent off thirty percent off.
Speaker 1: And you know the work by knomen In Tversky which
Speaker 1: has been heavily used in this field, that we hate
Speaker 1: the feeling of loss. We want to avoid that, and
Speaker 1: when we see the possibility of a deal going away,
Speaker 1: we experience that as a possible loss. And there's been
Speaker 1: he studies showing that we are hardwired to jump at
Speaker 1: the feeling that we've won, even if economically we end
Speaker 1: up with fewer dollars at the end. Well, that's part
Speaker 1: of what MADEI based so compelling, Right you won, which
Speaker 1: all that it meant was that you were willing to
Speaker 1: pay more than anybody else. Yes, but you won you
Speaker 1: write about another fascinating concept that existed in the old
Speaker 1: world of retail as well. So, but the left digit
Speaker 1: bias just touch on what that is, the left digit bias.
Speaker 1: So in the dark ages before there was any data available,
Speaker 1: I was talking to an economist used to teach at
Speaker 1: University of Chicago back in the early nineteen eighties, and
Speaker 1: they acquired data from the new scanners at the grocery
Speaker 1: chain Jewel, and he said it overturned a lot of
Speaker 1: what he'd been teaching in class. For instance, he'd been
Speaker 1: teaching that the notion that pricing something at two ninety
Speaker 1: nine or two ninety eight increased sales was a myth.
Speaker 1: He says, actually it was an artifact from the days
Speaker 1: when retailers were suspicious of cashiers taking something out of
Speaker 1: forced them to make changed so they wouldn't pocket any
Speaker 1: of money themselves. Well, he says, they got the data,
Speaker 1: and he says it turned out the effect was huge,
Speaker 1: that two ninety nine will sell a lot on especially
Speaker 1: on a car, you know, maybe not so, but on
Speaker 1: a can of tuna exactly. And that just basically gets
Speaker 1: to our kind of limited attention spanner or ability to
Speaker 1: process that much information where we can't function like a computer.
Speaker 1: We walk into a store, and so we pay the
Speaker 1: greatest attention to the most important digit, which is the
Speaker 1: one on the left and rose. For years have known that,
Speaker 1: which is why, for decade or for time, you know,
Speaker 1: time out of mind, they've known to set the price
Speaker 1: of milk and eggs quite low because they know that
Speaker 1: people have a pretty good fix on what that price
Speaker 1: should be, and so they use that to as a
Speaker 1: proxy to be like, is this place price well or not?
Speaker 1: And then knowing that they're not going to be as
Speaker 1: comparative scrutinizing numbers of other products as much. So. The
Speaker 1: interesting point there, too is that it's not like this
Speaker 1: old world was perfectly fair to consumers. We were getting
Speaker 1: We were getting scammed in the old world, perhaps just
Speaker 1: in a different way than we are in the new world. Yeah,
Speaker 1: but in a much smaller way, in a much smaller way. Yeah, Yeah,
Speaker 1: I guess I can see that paying to ninety nine
Speaker 1: or missing out on the slightly cheaper artichoke at the
Speaker 1: grocery store is a little bit different than having an
Speaker 1: entirely different price for an expensive dress presented to you online,
Speaker 1: right right, Yeah, that makes sense there was another piece
Speaker 1: of data, more proof that man is not a rational
Speaker 1: animal in your piece that Amazon would drop prices on
Speaker 1: expensive items like TVs on Black Friday, and then that
Speaker 1: hike the price of the less expensive stuff needed the cables,
Speaker 1: for instance, needed to connect the TV, knowing that we
Speaker 1: would not look as closely at we being the consumers,
Speaker 1: would not look as closely at that. Right Exactly, there's
Speaker 1: you bought the TV. Now you do the cheaper at all.
Speaker 1: But they're maybe the lost margin could be made up
Speaker 1: hugely just in the price of cables, so they can
Speaker 1: figure out ways to take advantage of how uneconomic we
Speaker 1: actually are, how irrational we can be, just on a
Speaker 1: whole new scale. Now then then the old world. I mean,
Speaker 1: it's made me think about my own shopping Happit's like
Speaker 1: when do I stop? I don't always like to think
Speaker 1: about that, but but when do we stop and actually
Speaker 1: think about the price, and when do we just sort
Speaker 1: of buy, Yeah, that looks right, and you know it
Speaker 1: varies hugely, and when do you what makes you stop
Speaker 1: and think when something's more expensive? I mean, if you're
Speaker 1: buying a house or car, you're not going to be like, oh,
Speaker 1: it's it's only ninety nine, that's ten. You know this, right,
Speaker 1: you know, just all the micro purchases that you do
Speaker 1: online where you've got your credit card out and yeah,
Speaker 1: I'll buy this Starbucks. Great example. You know people who
Speaker 1: then tally up how much Starbucks coffee they've drunk in
Speaker 1: the past year, and it's like three thousand dollars right right,
Speaker 1: And they could have paid a month of rent with
Speaker 1: their Starbucks bill. So to this notion that it's a battle, okay,
Speaker 1: I'm going to start with just us and retailers. Who's winning.
Speaker 1: After you reported this piece, did you feel like, oh,
Speaker 1: the well educated consumer who's willing to invest time in
Speaker 1: price shopping can come out ahead in this game, or
Speaker 1: did you feel like we're screwed. Person who's stuck with
Speaker 1: me most is someone knows a great This name is
Speaker 1: Bonnie Patton. She had a Truth and Advertising dot Org
Speaker 1: and I asked her about her own shopping habits sort
Speaker 1: of at the end of the interview, just like what
Speaker 1: about yourself? And she said, as a general matter, I
Speaker 1: find it so difficult to determine the actual price of
Speaker 1: the product that when she's shopping for her kids, she
Speaker 1: just makes all her decisions at the cashier. She just
Speaker 1: picks up clothes, doesn't think about price until she gets
Speaker 1: to the register, and if it comes out to be
Speaker 1: too much, she says, I don't want it. And then
Speaker 1: I asked, well, what about for yourself? And she says, well,
Speaker 1: I don't shop for myself. I mean, what do you mean?
Speaker 1: She's like, I don't shop for myself, and she basically explained,
Speaker 1: like this has gotten so crazy. It's twenty percent off
Speaker 1: of fifty percent and this adds like ice. She can't
Speaker 1: handle the math and she just as a result, stopped
Speaker 1: buying things. For one good practical piece of advice is
Speaker 1: you just like ignore anything with a percentage symbol after it.
Speaker 1: Why percentage? Why do you ignore the percentage symbol? Percentage
Speaker 1: symbols speaks to our like human craving to win at
Speaker 1: a deal. But if you looking at a lot of stores,
Speaker 1: you know everything will be twenty percent off fifty percent
Speaker 1: off the whole MSRP Manufacturers suggests retail price that increasingly
Speaker 1: is seen as kind of a joke that the FTC
Speaker 1: doesn't enforce the rules. I mean, notionally, it has to
Speaker 1: be sold somewhere at the listed price. But the few
Speaker 1: times people have looked into it, often that product was
Speaker 1: never sold at its quote unquote list price. Okay, but
Speaker 1: wait before we go back to that, So you're essentially
Speaker 1: telling me that you came out of this piece thinking
Speaker 1: the only way to win is to just drop out.
Speaker 1: There's no oh, wait, win other than just drop out.
Speaker 1: I guess I'll stop looking at percentages. Okay, I just
Speaker 1: look at the dollar amount, which is hard and thinking.
Speaker 1: Sometimes it's a huge percentage savings, but it's it's a
Speaker 1: tiny dollar amount that you're saving. And I did all
Speaker 1: this extra work to save seventy five cents. So if
Speaker 1: you can, maybe as a consumer, level the playing field
Speaker 1: a little bit by ignoring percentages, perhaps by checking out
Speaker 1: what about between the third combatant in this Amazon who
Speaker 1: wins there? Between retailers and Amazon and US? If you
Speaker 1: had to rank them in order, what's Amazon? Amazon wins Amazons?
Speaker 1: So how does this play out? I mean, in the end,
Speaker 1: what retailers are trying to do? And I found this
Speaker 1: fascinating survey here that retailers argued only three percent of
Speaker 1: retailers believe their current model is going to remain sustainable
Speaker 1: in the next five years. So they're trying to do
Speaker 1: this to survive two right, and you can see back
Speaker 1: to your point about economic irrationality and see how this
Speaker 1: doesn't win for them if they're just slashing prices in
Speaker 1: response to what Amazon's doing. So how does that aspect
Speaker 1: of it shake out? Well? Guru at Boomerang Commerce had
Speaker 1: a really interesting and from a retailer's standpoint, scary chart.
Speaker 1: The title of it was I think the crushing point,
Speaker 1: and it was that's frightening. But it was a chart
Speaker 1: that showed like years from nineteen ninety till now, and
Speaker 1: it mapped different categories like similar electronics, books, toys, and
Speaker 1: the percent of those sales that move online and what
Speaker 1: did show and then it lists bankruptcies in each sector.
Speaker 1: So Circuit City that got the toys are us so
Speaker 1: called category killers who are now being killed themselves. It
Speaker 1: happens around the twenty five percent mark, so twenty five
Speaker 1: percent of sales are online and in that industry, and
Speaker 1: that means the retailers start to go bankrupt. Yes, because
Speaker 1: the consumers at that point have so much power and
Speaker 1: so much power to comparison price online, comparison shop online,
Speaker 1: that it's just um. It usually sets off a vicious cycle,
Speaker 1: like they start cutting prices, cutting back on staff, cutting
Speaker 1: back radio, shack trapping, this kind of cycle. They offered
Speaker 1: really cheap batteries for a long time, but that just
Speaker 1: killed their margins. And meanwhile, you're taking away all the
Speaker 1: things that would drive people to a physical store in
Speaker 1: the first place, like some customer service, you know, human touch.
Speaker 1: You know. So freetailers are gonna win at this game
Speaker 1: or have a chance. It's going to be online. They're
Speaker 1: they're not going to win in a physical setting. Well,
Speaker 1: I wouldn't go that far. I don't know. I don't know.
Speaker 1: I mean, if the past present anything is that we
Speaker 1: don't know what's coming in the past. It passed this prologue.
Speaker 1: Who the hell knows, right, Yeah, exactly, you know. But
Speaker 1: I talked to one interesting company called Everlane, and so
Speaker 1: they did this thing where they were like, we're gonna
Speaker 1: be radically transparent about our costs on our website. They say, well,
Speaker 1: we're making this pashmina shawl, and it's the price is increasing,
Speaker 1: but that's because of the following things are happening in Mongolia,
Speaker 1: and so that's why we're increasing the price. They don't
Speaker 1: do discounts and their hope and the CEO who I
Speaker 1: talked to was, you know, he was hopeful that this
Speaker 1: might work. He was sort of skeptical. Okay, if he
Speaker 1: used the word hope and hopeful, I hope it's not
Speaker 1: a strategy. Who said that, Well, is this? Is this?
Speaker 1: So is everlain just the lone resistance and doomed resistance
Speaker 1: to this or or do you think they've got a chance. Well,
Speaker 1: there's been other cases where you see, like pay what
Speaker 1: you want models, radio hit, Radiohead did that early with
Speaker 1: one of their albums and yeah, and the findings on
Speaker 1: that are sort of interest, you know, like some people
Speaker 1: will actually pony up what they consider to be a
Speaker 1: fair amount of money. Maybe it's not unlike being in
Speaker 1: a museum. Whether it's a suggested donation. I have no
Speaker 1: idea if that's sustainable or doable thing. But it's being tried,
Speaker 1: so you're not really making any bets between who comes
Speaker 1: out on top. It's just all a moving puzzle right now. Yes,
Speaker 1: but it sounds like if you had to place your
Speaker 1: bets in one place, it would probably be on Amazon. Yes, yes,
Speaker 1: So do you see are there markets where it's different
Speaker 1: where consumers have more likelihood of coming out on top.
Speaker 1: And are there markets, whether it's for online goods where
Speaker 1: you're more likely to be suckered? Does it vary by
Speaker 1: category of purchase? For example, if clothing is maybe more
Speaker 1: emotional and perhaps I don't know, electronics are less emotional,
Speaker 1: that might be totally wrong. Would be for me, but
Speaker 1: maybe not for everybody. Yeah, I think the more it's
Speaker 1: a commodity and less specific. I mean, if it's a
Speaker 1: coat that you're only going to see at this one store,
Speaker 1: then we're probably less price sensitive to something than like
Speaker 1: getting the TV, where there's a lot of places we
Speaker 1: can get a TV. And what do you think happens
Speaker 1: on the legal side? Have you seen any did you
Speaker 1: hear of any cases being around this concept of discrimination
Speaker 1: or is it a murky area legally? Thus far it
Speaker 1: is a murky area legally, to say the least. There
Speaker 1: was a famous gaze back in two thousand and seven,
Speaker 1: or the California man bargain hunter who he thought he
Speaker 1: had scored big when he found a patio set on
Speaker 1: overstock dot Com. When I showed up at his house,
Speaker 1: he's unpacking it and he noticed is a price tag
Speaker 1: on it. But it was a nine hundred ninety nine
Speaker 1: that it was on sale at overstock for four forty nine.
Speaker 1: Walmart price was two forty seven. That was on the
Speaker 1: price tag. Oops. Yeah, so o our bargain hunter doesn't
Speaker 1: feel so good at this point. Yes, so, in fact,
Speaker 1: he had not scored the deal he had thought. He
Speaker 1: sued and actually won in a California judge awarded him
Speaker 1: six point eight million dollars in civil damages. Wow. Yeah,
Speaker 1: but these cases are fairly rare and it takes like
Speaker 1: a lot of In that case, they got access to
Speaker 1: internal emails of the company, were it made cleared that
Speaker 1: they were aware of what was going on. But it
Speaker 1: comes back to this point you made earlier about the
Speaker 1: MSRP or manufacturer suggested retail price even in the old world,
Speaker 1: not being all it was cracked up to be, right exactly. Yes,
Speaker 1: so well, thank you. I think I'm going to be
Speaker 1: far more frightened and aware in my online shopping from
Speaker 1: now on. And thank you for coming on, thanks for
Speaker 1: having me. Okay, Well, that Overstock lawsuit raises an interesting prospect.
Speaker 1: Maybe we can win back the money we're losing to
Speaker 1: newly empowered retailers by filing lawsuits. I'm kidding, of course,
Speaker 1: but the questions raised by this are pretty disturbing and
Speaker 1: even profound. How can we keep ourselves from being yes
Speaker 1: suckered by retailers? Can most retailers find a way to
Speaker 1: compete with Amazon? And is this brave new world what
Speaker 1: any of us would consider fair? My takeaway there are
Speaker 1: no easy answers. Stay tuned and shop smart. Makia Killing
Speaker 1: is a co production of Pushkin Industries and Chalk and Blade.
Speaker 1: It's produced by Ruth Barnes and Laura Hyde. My executive
Speaker 1: producers are Alison McClain, no relation in making Casey. The
Speaker 1: executive producer at Pushkin is Mia Loebell. Engineering by Jason Rostkowski.
Speaker 1: Our music is by Jed Flood. Special thanks to Jacob
Speaker 1: Weisberg at Pushkin and everyone on the show. I'm Bethany mcclin.
Speaker 1: Thanks so much for listening. Find me on Twitter at
Speaker 1: Bethany mac twelve and let me know which episodes you've
Speaker 1: most enjoyed.