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Beware of dynamic pricing

March 2013

My friend Bill, who's lived in Beijing sporadically over the past 10 years, says that when a Westerner walks into a retail store, clerks automatically quadruple the price of an item. Want to buy a necktie? They'll quote you a price of $30. But Bill knows the real price is around $7.50.

Not only that, they're offended if you actually pay the $30. They expect you to haggle — it's part of their culture. Bill has learned their game. How much do you think he paid for that necktie? He got them to sell him a bunch of ties for $1 a piece. As he left the store, they asked him not to come back.

This manner of pricing has always seemed inefficient. In some countries you have to haggle over everything, even a train ticket. Pricing in the West has always seemed more stable and realistic.

Now for the bad news: that's changing. Welcome to the era of "dynamic pricing." A recent article in Time magazine gives the example of Lego's Epic Dragon Battle, which has a manufacturer's suggested retail price of $119. When the toy got to be a hot item earlier this year, Amazon actually jacked up the price to $140. Retailers are increasingly abandoning MSRP in favor of dynamic pricing.

It gets worse. As you likely know, websites and search engines collect information about you as you use the Internet in order to give you ads and search results that are more closely related to your interests. (They say they don't associate this data with your name in order to protect your privacy.) According to the Time article, some retailers even use this data about you to figure into the price.

For example, if you're a camera enthusiast looking to purchase a particular camera, you might see a higher price than you would otherwise. Or if you're located in Beverly Hills, that might affect the price. The article even suggests that "brick and mortar stores" will also adopt dynamic pricing such that the price will change depending on your shopping history.

Of course, this is nothing new: the retail stores my friend Bill visited in China automatically adjusted the price according to his country of origin.

So what's a shopper to do? Information is key. The retailer in Beijing assumes that Westerners are unfamiliar with pricing in China and won't find a $30 tie unreasonable. But Bill was savvy. And like Bill, we need to be savvy.

More than ever before, you're going to need to rely on price-comparison search engines, either by searching online at home or using your smartphone as you shop in a retail store. While retailers initially hated these resources, they now accept them, and many retailers, such as Best Buy and Target, will now match the lowest price you can find online.

I did a quick test of a number of sites searching for a Canon G1 X camera. I found I preferred the following two sites:

Google Shopping — Type in a product name and it returns a list of possible matches. Click on a specific product, and it will return a list of sites that have it for sale, including base price and total price including shipping. It also tells whether the merchant charges sales tax. If you click on a column head, such as Total Price, it will sort the list according to price, with the lowest price first. Google Shopping includes eBay listings in its results.

PriceGrabber — This site indexes millions of products and services in 25 categories. It also lets you compare the reviews of sellers to determine which are most trustworthy.

There are many free smartphone apps that let you do price comparison while in a store simply by using your phone's camera to scan the bar code.

RedLaser pioneered accurate barcode scanning and continues to be a leader. It scans all major codes including UPC and QR. Price Check by Amazon not only lets you scan the barcode of an item in the store, but you can then order it on the spot from Amazon if it has a lower price. You can also search via voice or by taking a picture of the item. Shopping by The Find is similar to the others but is also location-aware and has maps to help you find your way to the nearby stores with lower prices. It even has a feature that lets you know if a particular item is eligible for price matching at Best Buy and Target.

So be a savvy shopper and use these tools.

This month's hot tips:

VLC media player lets you watch videos in any file format. RetailMeNot has coupons for 130,000 stores and websites, including grocery stores.

© 2013 by Jim Karpen, Ph.D.

E-mail Jim Karpen