Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.
Monday, March 30, 2009
(For those who had an early Paddy’s day: in 1999, Coca Cola executives talked about experimenting a new technology in vending machines that could increase the price of a coke in hot weather, or, which is basically the same, lower it in cold weather.)
I need to say that I have been disappointed by the class reaction in the discussion; being liberal, neoliberal is for sure useful but the responsible managers that we are supposed to become can not simply have this cost/profit thoughts and we have to think about the sense and the long term impacts of our decisions.
I will not discuss to what extend it would benefit the company or on the contrary, harm the brand image. Both approaches are theoretically true, and worth consideration. I will talk about a technology that implement an automatic price discrimination and about the scandal of taking advantage of basic needs.
Why should it be such a scandal ? On an economical point of view, this technology is just a best way of following the law of supply and demand. Is the demand higher? The economic theories want you to increase your product price. Are you in a desperate need for a coke? Then you are willing to pay it a higher charge just because of this urgent need. Nowadays, very few products have fixed prices and you would event be surprised and even choked if it was not the case, you might even suspect the government to intrude in the business to ensure fixed prices. This price discrimination is even a kind of micromarketing, trying to tailor the prices to customer immediate needs.
So what is the difference between a coat that you would buy $60 more in the winter, and a coke that you would buy 10 cents more in hot weather?
The first difference comes from the fact that the process is automatic for the coke whereas the coat has been discounted after a decision of the store’s team. John S. Irons mentions it in its article (in the casebook)[i]: there is a huge potential in such an automatic pricing process on line and websites such as Amazon have already taken advantage of it. And the exhibit 3 in the casebook highlights the kind of uneasiness people have toward an intelligent machine whose process abilities would reach the one of a human being. We all want to be treated fairly and honestly, which a machine is not able to evaluate. Studies about behavioral pricing has “proved” that price expectations are highly variable depending on the context, and the feeling of getting a fair deal is one of the criteria that determine our price expectation in a specific situation. The automatic process ruins any possibility of insuring the impression of getting a fair deal. The coat is discounted by human beings for human beings after a thinking process, and it ensures, if not true fairness, at least more fairness than an automatic process.
The second difference is pinned on the opposition “basic vs non basic needs”. One can obviously argue that drinking a coke is no basic need. I will have to agree. Say then that we consider a glass of water. Everyone will agree that being charge 50 cents extra for a bottle of water, when it is the only thing available in the area, because and only because you are thirsty is unfair. And scandalous. This is called exploitation. I do not care how much the specific brand will be damaged ; my concern is purely moral. In economics, there are situations you can take advantage of, especially when they imply non basic needs. But there are borders you can not cross. The developing world is already struggling to have the “right for water” recognized as a basic human right; please don’t make it even harder for them by denying it explicitly in the developed world.
In these times of economical crisis and global questioning, globalization and economics are wished to be more human. I believe it can happen through a bunch of decisions of that kind.