2 months, 16 days ago

The Price of Everything

#PowerSwitch The relationship between the retailer and the customer can be beset by calculation on both sides. The retailer is trying to extract enough data about the customer to calculate the next best action, while the customer is trying to extract the best deal.

There is nothing new about customers comparing products and prices between neighbouring shops, and merchants selling similar goods can often be found in close proximity in order to attract more customers. (This is especially true for specialist and occasional purchases: in large cities, whole streets or districts may be associated with specific types of shop. London has Denmark Street for musical instruments, Hatton Garden for jewellery, Saville Row for made-to-measure suits, and so on.)

But nowadays the villain, apparently, is eCommerce. As a significant share of the retail business migrates from the high street to the Internet, many retailers are concerned about so-called showrooming. It may seem unfair that a customer can spend loads of time in the high street, wasting the time of the shop assistants and shop-soiling the goods, before purchasing the same goods online at a better price. To add insult to injury, some people not only practice showrooming, but then blog about how guilty it makes them feel.

The assumption here is that the Internet can generally undercut the High Street, and there are several reasons why this assumption is plausible.

  • Internet businesses compete on price rather than service, so the prices must be good.
  • An internet store can provide economies of scale – serving the whole country or region from a single warehouse, instead of needing an outlet in each town.
  • An internet store can offer a much larger range of goods without increasing the cost of inventory – the so-called Long Tail phenomenon
  • An internet store typically has lower overheads – cheaper premises and fewer staff
  • An internet business may be run as a start-up, with less “dead wood”. So it is more agile and less bureaucratic. 

However, there are some counterbalancing concerns.

  • The economic and logistical costs of delivery and return can be significant, especially for low-ticket items. With clothing in particular, customers may order the same item in three different sizes, and then return the ones that don’t fit.
  • Investors previously poured money into internet businesses, and the early strategic focus was on growth rather than profit. As internet business become more mature, investors will be looking to see some decent returns on their investment, and margins will be pushed up.
  • And then there is differential pricing …

One of the key differences between traditional stores and online stores is in pricing. Although high street retailers often drop prices to clear stock – for example, supermarkets have elaborate relabelling systems to mark-down groceries before their sell-by date – they do not yet have sophisticated mechanisms for dynamic pricing. Whereas an online retailer can change the prices as often as it wishes, and therefore charge you whatever it thinks you will pay. According to Jerry Useem,

“The price of the headphones Google recommends may depend on how budget-conscious your web history shows you to be.”

I heard Ariel Ezrachi talking about this phenomenon at the PowerSwitch conference in Cambridge a few weeks ago. (I have not yet read his new book.)

“There is an assumption is that the internet is a blessing when it comes to competition. Endless choice. Ability to reduce costs to close to zero. etc … What you see online has very little to do with the ideas we have of market power, market dynamics, etc. everything is artificial. It looks like a regular market, with apples or fish. But because it’s all monitored, it’s not like that at all. What you see online is not a reflection of the market. You see “the Truman Show” — a reality designed just for you, a controlled ecosystem.” (via Laura James’s liveblog)

In his play Lady Windermere’s Fan, Wilde offered the following contrast between the cynic and the sentimentalist.

Lord Darlington: What cynics you fellows are!
Cecil Graham: What is a cynic?
Lord Darlington: A man who knows the price of everything and the value of nothing.
Cecil Graham: And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn’t know the market price of any single thing.

According to one of the participants at the PowerSwitch conference, some eCommerce sites quote higher prices for Apple users, based on the idea that they are less price-sensitive and can afford to pay more. In other words, the cynical Internet regards Apple users as sentimentalists.

If there is an alternative to this calculative thinking, it comes down to reestablishing trust. Perhaps then retailers and consumers alike can avoid an artificial choice between cynicism and sentimentalism.


Emma Brockes, I found something I like in a store. Is it wrong to buy it online for less? (Guardian, 3 May 2017)

Ariel Ezrachi and Maurice Stucke, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy (Harvard University Press, 2016) – more links via publisher’s page

Laura James, Power Switch – Conference Report (31 March 2017)

Joshua Kopstein, Is Amazon Price-Gouging You? (Vocativ, 4 May 2017) via @charlesarthur

Jerry Useem, How Online Shopping Makes Suckers of Us All (Atlantic, May 2017)

Price-bots can collude against consumers (Economist, 6 May 2017)

The Dilemma of Showrooming, (Daniels Fund Ethics Initiative, University of New Mexico)


Related posts: Online pricing practices to be regulated? (October 2009), Predictive Showrooming (December 2012), Showrooming and Multi-Sided Markets (December 2012), Showrooming in the Knowledge Economy (December 2012).

3 months, 3 days ago

Pride, Prejudice, and Professionalism in the Business of IT

Twenty-plus years in IT have led me to believe that there are very few absolutes when it comes to software systems. Two that do seem to hold true are these: Creating systems is esteemed far more highly than maintaining systems. Systems that are not maintained, will decay. There are a variety of reasons for this […]

4 months, 12 days ago

Inspector Sands to Platform Nine and Three Quarters

Last week was not a good one for the platform business. Uber continues to receive bad publicity on multiple fronts, as noted in my post on Uber’s Defeat Device and Denial of Service (March 2017). And on Tuesday, a fat-fingered system admin at AWS managed to take out a significant chunk of the largest platform on the planet, seriously degrading online retail in the Northern Virginia (US-EAST-1) Region. According to one estimate, performance at over half of the top internet retailers was hit by 20 percent or more, and some websites were completely down.

What have we learned from this? Yahoo Finance tells us not to worry.

“The good news: Amazon has addressed the issue, and is working to ensure nothing similar happens again. … Let’s just hope … that Amazon doesn’t experience any further issues in the near future.”

Other commentators are not so optimistic. For Computer Weekly, this incident

“highlights the risk of running critical systems in the public cloud. Even the most sophisticated cloud IT infrastructure is not infallible.”

So perhaps one lesson is not to trust platforms. Or at least not to practice wilful blindness when your chosen platform or cloud provider represents a single point of failure.

One of the myths of cloud, according to Aidan Finn,

“is that you get disaster recovery by default from your cloud vendor (such as Microsoft and Amazon). Everything in the cloud is a utility, and every utility has a price. If you want it, you need to pay for it and deploy it, and this includes a scenario in which a data center burns down and you need to recover. If you didn’t design in and deploy a disaster recovery solution, you’re as cooked as the servers in the smoky data center.”

Interestingly, Amazon itself was relatively unaffected by Tuesday’s problem. This may have been because they split their deployment across multiple geographical zones. However, as Brian Guy points out, there are significant costs involved in multi-region deployment, as well as data protection issues. He also notes that this question is not (yet) addressed by Amazon’s architectural guidelines for AWS users, known as the Well-Architected Framework.

Amazon recently added another pillar to the Well-Architected Framework, namely operational excellence. This includes such practices as performing operations with code: in other words, automating operations as much as possible. Did someone say Fat Finger?


Abel Avram, The AWS Well-Architected Framework Adds Operational Excellence (InfoQ, 25 Nov 2016)

Julie Bort, The massive AWS outage hurt 54 of the top 100 internet retailers — but not Amazon (Business Insider, 1 March 2017)

Aidan Finn, How to Avoid an AWS-Style Outage in Azure (Petri, 6 March 2017)

Brian Guy, Analysis: Rethinking cloud architecture after the outage of Amazon Web Services (GeekWire, 5 March 2017)

Daniel Howley, Why you should still trust Amazon Web Services even though it took down the internet (Yahoo Finance, 6 March 2017)

Chris Mellor, Tuesday’s AWS S3-izure exposes Amazon-sized internet bottleneck (The Register, 1 March 2017)

Shaun Nichols, Amazon S3-izure cause: Half the web vanished because an AWS bod fat-fingered a command (The Register, 2 March 2017)

Cliff Saran, AWS outage shows vulnerability of cloud disaster recovery (Computer Weekly, 6 March 2017)

4 months, 20 days ago

Fear of Failure, Fear and Failure

Some things seem so logically inconsistent that you just have to check them out. Such was the title of a post on LinkedIn that I saw the other day: “Innovation In Fear-Based Cultures? Or, why hire lions to be dogs?”. In it, Michael Graber noted that “…top-down organizations have the most trouble innovating.”: In particular, […]

10 months, 3 days ago

Leadership Anti-Patterns – The Thinker

My interest in leadership, how it works and how it fails, goes back a long way. Almost as soon as I learned how to read, history, particularly military history, has been a favorite of mine. Captains and kings, their triumphs and their downfalls, fascinated me. The eleven years I served with the Henrico Sheriff’s Office […]

10 months, 7 days ago

Leadership Anti-Patterns – The Great Pretender

My previous leadership type, the Growler, was hard to classify as it had aspects of both pattern and anti-pattern. The Great Pretender, however, is much easier to label. It’s clearly an anti-pattern. Before entering the working world full-time, I worked in the retail grocery business (both of my parents also had considerable industry experience, both […]

10 months, 18 days ago

Leadership Patterns and Anti-Patterns – The Growler

Prior to starting my career in IT (twenty years ago this month…seems like yesterday), I spent a little over eleven years in law enforcement as a Deputy Sheriff. Over those eleven years my assignments ranged from working a shift in the jail (interesting stories), to Assistant Director of the Training Academy, then Personnel Officer (even […]

1 year, 1 month ago

Form Follows Function on SPaMCast 399

This week’s episode of Tom Cagley’s Software Process and Measurement (SPaMCast) podcast, number 399, features Tom’s essay “Storytelling: Developing The Big Picture for Agile Efforts”, Kim Pries on deliberate practice, and a Form Follows Function installment on customer-centricity for IT. Tom and I discuss my post “A Meaningful Manifesto for IT”. It seems obvious that […]

1 year, 4 months ago

A Meaningful Manifesto for IT

“Customer-centricity” is one of the biggest tags in the tag cloud to the right. My first post this year was “Is 2016 the Year for Customer-Focused IT?”. It’s a concept that I find vitally important to IT for the simple reason that to the extent that IT is not fit for purpose, it’s a waste […]