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RFID-Customized Pricing

In their book Spychips, Liz McIntyre and Katherine Albrecht raise the spectre of personalized pricing, done so that you would never know. As they paint it, the RFID-enabled store would read your store membership card, and if you were a bargain-hunter, would raise the price you were charged for the item. If you were a high-margin customer, say, one who didn't wait for the $2.50-per-twelve-pack for Diet Coke, they might give you a break. The advertised price is for the non-members, or someone without enough of a track record to screw with analyze.

This strikes me as a singularly bad idea, albeit one unlikely to cost me much money.

Unlikely to cost me money, because even if King Sooper (that's "Kroger's" to you) decides that it doesn't want to sell me Diet Coke for $2.50, there are large companies (read: Wal-Mart, Save-On, Sav-a-lot, Target) whose entire business model is predicated on going after people like me. And if King Sooper stops selling me Diet Coke for $2.50, even though that's the sale price, they're going to lose my Empire Chicken business, too.

But it's also a bad idea for the economy. One of the great advances in western economies came with the advent of fixed prices. There was a time when, if Mr. Clean were on sale, we would have had to bargain with the merchant as though we were buying a new Jeep. Fixed prices are much more efficient, because the time wasted haggling over a few pennies is much better spent doing something else, like productive work.

Now, in addition to right-pricing the item, computer programs would have to be developed to right-price for any number of different sorts of customers. With both customer behavior and market conditions changing on a daily basis, it's hard to believe that the effort put into such software could actually be worth it. Worse, as a consumer - business or individual -, it becomes virtually impossible for me to know the price before I go to the store. If that doesn't reintroduce inefficiencies into the system, I don't know what does.

The book compares the chaos that would result to the pricing of airline tickets, except that that's not quite right. As Thomas Sowell has pointed out, you're not just paying for the ticket - you're also paying for flexibility. If you buy your ticket late, you're paying for the right to wait till the last minute, possibly in response to factors you can't control.

A better comparison is preferred-customer programs on steroids. Usually, you can see what points you've accumulated, and choose how you want to spend them. Even when the program results in an immediate price difference, it's usually infrequent, and presented as a reward or a bonus. It rarely factors into overall purchasing decisions.

I'm not big on intangibles and feelings when it comes to the market. But the reason the system works is that it's a system of contracts above (although exclusive to) personal relationships. If a store is going to routinely change prices just for me according to some algorithm I can't understand, the whole system starts to look as though it's reversing that precedence. And remember, every business is someone else's customer.

Which is why I don't think it'll catch on.

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