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Colin Johnson’s blog

Archive for September, 2017

Adaptive Pricing

Sunday, September 10th, 2017

Firms selling things have a dilemma. Price something too low, and, whilst it will sell well, it won’t make enough money to be worth doing (leading to the old joke: “We’re selling each item at a loss; but, don’t worry, we’ll make up on it in volume.”). Price something too high, and you won’t sell enough widgets to make enough money. The traditional view on this is that it is a tradeoff; find a mid-range price where you sell enough widgets at a high enough price. If you can’t do this, then the business isn’t viable.

This is finessed by the notion of adaptive pricing. This is where the same widget is sold to different people at different prices. This makes more businesses financially viable. This is where firms adjust prices based on some information that they can observe, or some structuring of how/when/where/to whom the products are sold:

  • Selling to different demographics based on broad ability to pay. Discounts for students or retired people, who are likely to have a lower income. Changing prices at different times of the day, based on the demographic that is around (e.g. a price premium for buying a coffee at the station at peak commuter time; or, more simply, the idea of peak time tickets).
  • Rewarding time/organisation: tickets come on sale at a particular date/time, but there are only a finite number at that price. People who are time rich/cash poor can spend time to be organised to buy at the cheaper price, whereas people who have more money don’t have to spend the time, they just buy at the higher price later.
  • Selling at different prices in different locations. This has a dark side too; some firms have exploited the lack of transport options of poor people living in cut-off areas by selling at a higher price.
  • Auctions, where items are sold for a bespoke price based on demand.
  • Secondary markets, where a firm sells widgets cheaply and efficiently, but a secondary retailer (such as a ticket tout) buys up some of them and sells them on to the final purchaser at an inflated price.
  • Hiding prices. Rather than a price being given up-front, you have to go through some intermediary system that judges your ability to pay, or your need for the product, and adjusts prices accordingly. The watch shop that judges whether you are a middle-income watch enthusiast or a rich person who wants to brag about the cost of their watch; the retailer of tools who judges whether you will be using the tool day-in-day out or are an occasional user who would buy it for a sufficiently low price.
  • Similarly, making use of your purchasing history to adjust prices on an online system.
  • Micropayments. Rather than paying up-front to purchase something, you pay by the number of minutes/hours that you use it, or what you use it for.
  • Time-adjusted pricing. You show an interest, and if you want it right now you pay the price; the price goes down with time, but if you wait too long you run the risk (perhaps entirely artificially generated) that stock will run out. The TV-based retailer PriceDrop is canonical here.
  • Rewards. You all pay the same price up front, but more price-sensitive customers are given some of that money back as vouchers so that their average spend per widget is lower in the long run.
  • Direct demand-adjusted pricing. Uber’s entirely-up-front “surge pricing”, for example. Again, speaks to the time/money tradeoff; someone who needs a lower price might be prepared to wait for half-an-hour to see if surge pricing goes away.
  • Artificial hobbling. You all buy the same product, making manufacturing easy, but some features are turned off on the lower product range. Tesla cars work like this; you can buy a cheaper version, which has a lower distance range; but, the hardware is the same as the premium product, the distance is just limited by a software switch in the cheaper version.
  • Things that seem more different. The same object sold with changes to the branding. Surplus stock sold to a poundshop on the condition that they repackage it. Cheap train tickets sold through a different brand, but when you show up you are on the same train in the same seats as people who paid a lot more.
  • Superficial benefits. Exploiting that some people will pay for “the best” regardless. First-class train travel is probably a decent example here; a slightly more comfortable seat and free tea/coffee, but sometimes at a price premium which seems irrationally larger.

I would make an educated guess that cracking adaptive pricing will be one of the big innovations in business in this century. It is increasingly used, but there is still a huge amount of finesse to do here. Already, supermarkets are experimenting with systems such as electronic price displays, allowing dynamic adjusting of price during the day, either by broad demographic shifts, or by minute-by-minute demand. And there are already critiques: the transport company that (algorithmically) increases its prices following a natural disaster, the company that (algorithmically) sells the music of a recently-dead star at a premium.

Interestingly, there is a weird potential consequence to all of this. Will this mean that differences in income become less pronounced? If I had an ideal adaptive pricing system, where, say, I charged people not a price, but a proportion of their income, for my product, then that would have the outcome that people would de facto have the same income. Clearly, the systems above are not at that level yet; but, each adaptive pricing innovation brings us closer to that.

Languages and the Uncanny Valley

Tuesday, September 5th, 2017

A long time ago, as a wet-behind-the-ears English person coming to Scotland for the first time, I was intrigued/surprised/amused to see a copy of The New Testament in Scots in a bookshop (the old James Thin on South Bridge, now a branch of Blackwells).

The New Testament in Scots:

I was vaguely aware that there was a Gaelic language, which not many people used, and had a basic knowledge that there was a Scots accent and vocabulary, albeit largely gleaned from watching Russ Abbot’s “see u Jimmy” character on TV:

Russ Abbot as Jimmy

…but the idea of treating this as a language was alien to me. I’ve developed by knowledge of this world over the years, and can appreciate the literary qualities of it, particularly through the thoughtful work by Hugh MacDiarmid. But, what explains my initial sense that this sort of thing is a bit ludicrous, a little trying-too-hard:

Excerpt from the Bible in Scots

…a little too close to the clearly humorous (though perhaps not evangelically purposeless) Ee by Gum, Lord!: The Gospels in Broad Yorkshire.

Ee By Gum, Lord! book cover

Why did I, 25 years ago, think that its description as “a translation” was odd. I wouldn’t have regarded a translation into French or Japanese or Guarani strange—so, why Scots? This touches, I suppose, on the language vs. dialect debate; when does a dialect become a separate language. This seems to be an ill-defined question; there is clearly a continuum, and whilst groups of language-users cluster at certain points thereon, this doesn’t happen cleanly enough to be a series of isolated clumps.

One idea that might help to explain this is the uncanny valley; here’s one of its inhabitants, a rather realistic looking humanoid robot:


This sort of thing—not far of being human, but not close enough to “pass”—is said to be uncanny, and this is backed up by a number of empirical studies. People are freaked out by this, much more than something really realistic or something more cartoony and obviously unrealistic. There is a point on the similarity scale, close to full realism, where suddenly people’s familiarity and comfort with the thing rockets downward:

Uncanny Valley graph

I think the same is true for languages. Sufficiently far away—French, say, or Sanskrit—and the language is dissimilar, clearly different. Close enough—Nottinghamshire and Yorkshire, say—and the similarities are unremarkable. But the distance from RP English to Scots sits just at the right distance of unfamiliarity; like enough to be familiar, far enough away to seem different. Interestingly, the reaction is one of amusement rather than unsettledness; but, the idea of an emotional reaction being triggered by something close to but not really close to something is still there.