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Re: [projectvrm] Value Based Pricing. Fair or Foul?


Chronological Thread 
  • From: Adrian Gropper < >
  • To: Guy Higgins < >
  • Cc: Graham Hill < >, "T.Rob" < >, ProjectVRM list < >
  • Subject: Re: [projectvrm] Value Based Pricing. Fair or Foul?
  • Date: Tue, 18 Feb 2014 07:31:13 -0500
Regardless of the ethics, VRM could change the lack of transparency that drives value-based pricing.

US healthcare, as is often the case, leads the world in confusopoly. Most of healthcare pricing is a closely guarded secret between payers and providers. (Quality, for its part, is obfuscated in other ways.) Crowdsourcing of healthcare prices has been attempted on a limited scale.

VRM and personal clouds could revolutionize price transparency if citizens decide to use the technology to do so.

Adrian


On Tue, Feb 18, 2014 at 6:41 AM, Guy Higgins < " target="_blank"> > wrote:
Seems to me that, absent some mandate to purchase, all pricing is value-based.  If the product or service costs more than the value I attach to it, I simply don’t buy it.  The free market (if there actually were one — and the constraints in the freedom of the market are created by both government and businesses), sets prices that, on average, people are willing to pay.  In an old fashion town-square market, each individual got to haggle over the price and arrive at a value-based price that satisfied both people (or there wasn’t a sale).  Perhaps that were the Internet and VRM are headed, but beating up on companies for offering different prices may feel really good, but doesn’t help.

As for prosecuting people for price gouging in the wake of Sandy (or any other disaster), the higher local prices draw people from outside the disaster area.  Goods and services show up.  When we had the floods in Colorado last September, we had Service Pro teams show up from Texas — and more people got service much more quickly (and therefore at lower overall cost) than would have been the case if the Peoples’ Democratic Republic of Boulder had imposed pricing limits.  Why drive your team from Texas to increase the supply if it costs you more, but you can’t charge for it?

Doesn’t mean that there aren’t price gougers, but it’s really hard (albeit not impossible) to gouge people in a free market.  The problem is that the problem is way too complex for people to fix it through legislation or mandate.  Markets are dynamic and mandates are static — static rules do a crappy job of improving dynamic situations.

Guy


Hi T.Rob

Value-based pricing is a difficult area. 

On the one hand there is no logical reason why a person with a greater contextual need for a product should not be charged more than someone with a lesser need. This is the simple economic principle behind the widespread use of yield management by airlines, cruise lines, hotels and other companies with seasonal, perishable or variable value assets. And it works; airlines are estimated to increase their revenues by 4-6% through yield management without increasing their operating costs. 

On the other hand it can easily cause moral outrage and even lead to legislation enshrining pricing fairness. Amazon was roundly pilloried for its earlier crude experiments with variable DVD pricing (http://edition.cnn.com/2000/TECH/computing/09/13/amazon.reaction.idg/index.html?_s=PM:TECH). And the State of New Jersey has persecuted hundreds of companies for price gouging in the wake of Hurricane Sandy (http://www.njconsumeraffairs.gov/press/11282012.htm). Not everybody thought price gouging was unfair (http://www.forbes.com/sites/artcarden/2012/11/04/want-to-end-sandy-shortages-let-gougers-gouge/); which incidentally, rather raises the question whether economists live on the same planet as the rest of us. It also sparked a debate about what constitutes price gouging (http://www.nj.com/business/index.ssf/2012/11/bamboozled_after_sandy_a_debat.html). 

Value-bsed pricing will most likely increase in usage. The conditions under which it works best are now well understood (http://www.insead.edu/facultyresearch/research/doc.cfm?did=925). I wonder how this should apply to VRM. Should customers in the most need by charged higher prices? It's good for sellers but not so good for customers. Should all customers be charged the same price?It's good for customers but not so good for vendors. As the witches in Macbeth chant, "fair is foul an foul is fair"! What do you think?

Best regards from Cologne, Graham


A live demonstration of differential pricing.  Congratulations, you've won the Amazon price-insensitive lottery.
 
Kind regards,
-- T.Rob
 
 
From: Lionel Wolberger [mailto:lwolberg@gmail.com] 
Sent: Monday, February 17, 2014 13:33 PM
To: T.Rob
Cc: Dan Blum; David Bailey; Doc Searls; Mary Hodder; ProjectVRM list; Johannes Ernst
Subject: Re: [projectvrm] No doubt that Amazon is good to its customers?
 
(Hope all these emails are not too annoying--I am just sharing this differential pricing on the part of Amazon)

In my Emmett-protected browser, I match your previous quote:
I have Hardcover $20.15

Kindle, $14.85

All my unprotected browsers show the higher price.
And get this--after I log in to Amazon in Mozilla--the price goes down to 14.85.
Very strange, screenshots attached.

 

> , and the water sweeter than that of any of their large competitors.
 
Which I think makes my point.  If the criteria for good service is relative to everyone else then it is possible to be enormously successful and yet provide terrible service.  (i.e. insert cable company name of choice here.)  I didn't say Amazon's service is not the best, only that when viewed on an absolute rather than relative scale it doesn't rise to the level of good unless your purchases consistently fall within the peak of their bell curve.
 
I'm happy to state the yardstick.  For starters, I'd like my vendors to refrain from coercion when attempting to trap me within their walled garden.  I have every right to do whatever I want with my transactional data, including maintain databases of my collection of media.  However, it'd be nice if I wasn't required to enter that data by hand so I asked Amazon whether I could use their API to fetch the detail of my past book purchases.  Not only am I not allowed to fetch that data, but I was told that if it ended up on Goodreads - even if I entered it by hand - that I might find all my digital book purchases rescinded.  The folks at Goodreads, who at the time were not owned by Amazon and had been battling with them over data issues, were so intimidated that they threatened to close my account just for talking in the forums about populating my profile with Amazon purchase data.
 
> I'm sure they'd be interested if we gave them a well-thought out business case.
 
I'm sorry, but I refuse to articulate a business case to not blackmail me.  It's the wrong discussion to have and not one I'll participate in. 
 
But setting that aside for a moment, one of the issues that I have is the standard strategy of very large companies to clear customer service cases by having a primary filter tier which assumes the customer is a total idiot.  Now, I've worked in customer service and realize that you do clear a lot of cases this way but at some point it should be possible to earn sufficient reputation to bypass this tier.  Then when, for example, you send in a customer service query concerning the Amazon MP3 player the response is not that a trained monkey (probably an autoimated program) sends you back a link to the MP3 FAQ rather than someone with high reading comprehension scores takeing the time to actually understasnd and respond to the complaint.
 
I would think that there's a business case to be made for not treating all customers as if they are not total idiots but this may by my customer-oriented thinking and not market-oriented thinking.  It may be that the reason most large companies treat all initial customer service inquiries as if they come from total idiots is that it is profitable to do so.  But by the same token, so long as it is profitable to treat customers like total idiots we will never see a race to the top in customer service.
 
And this to me is the essence of the tension on this list regarding the viability of VRM.  So long as it is profitable to treat customers like total idiots, then there is no business case for VRM and VRM will not primarily be a tool with which companies increase their profit margin.  However, VRM in the hands of consumers can make policies that treat people like total idiots become unprofitable.  So given a choice between expending lots of effort to get utilities to do smart meters the right way versus just buying a Neurio and lots of Ube (rebranding to Plum) devices, I'll get the stuff that meets my needs today.  And since I have the data I need, I'll probably participate in protests against the utility's smart meters, especially if they continue to deploy them with no security whatsoever.  Amazon is so deeply entrenched that there are fewer opportunities to disrupt them but I recently participated in two Kickstarter campaigns which netted me dozens of books in hardcopy, digital and audio formats.  True there are some I won't read but those two purchases offset 10 or more Amazon/Audible purchases.
 
I'll build out on the Enterprise side wherever and whenever I can.  I won't stop approaching my Enterprise customers with VRM proposals.  But even the early Enterprise adopters are positioning to ride a wave that won't ever come if this isn't built out on the customer side.  The market cannot differentiate on something the customer cannot see, measure or influence.  VRM has to be built out on the customer side before we can have a race to the top in customer service. Amazon being a prime example of that. 
 
Kind regards,
-- T.Rob
 
From: Dan Blum [mailto: " style="color:purple;text-decoration:underline" target="_blank"> ] 
Sent: Monday, February 17, 2014 10:21 AM
To: T.Rob; David Bailey
Cc: Doc Searls; Mary Hodder; ProjectVRM list; Johannes Ernst
Subject: Re: [projectvrm] No doubt that Amazon is good to its customers?
 
 
 
But if you judge Amazon by what they actually do, I think the glass is half full, at least, and the water sweeter than that of any of their large competitors
 
- First big company to sell songs as MP3's for 99 cents
- Twice I had problems with a Kindle. Both times they answer the phone and one time they just sent me a new Kindle
- Once I accidentally bought two copies of the same book. I easily found the link to deal with the problem and not only did they give me a refund they didn't trouble me to mail them the second book back.
- Yesterday I got a copy of Uncle Tom's Cabin (free on the Kindle) and 99 cents for whispersync to audible.com
- I have a free linux virtual machine to play around with in AWS
- they never stalk me or bother me in any way that I've noticed
 
The message I'm replying to seems to question Amazon's motives and hold them up against some unstated yardstick.
 
I think we would do well to examine companies like Amazon from this perspective - "how could more VRM in their business model, or more focus on high-quality customer relationships, make them more money?" I'm sure they'd be interested if we gave them a well-thought out business case.
 
Dan

 

> There is no doubt that Amazon is good to its customers.
 
Seriously?  They are my go-to example of being too-big-to-care.  In my experience they are "good to customers" only so long as the customer is near the peak of the bell curve.  Do anything in the shoulder and you begin to see the customer service unravel. Get out in the long tail and there is none. 
 
I know there are Amazonians in our community and I hope they don't take this the wrong way.  What amazon does well they do extremely well. But if they are to fix the things they fall down on they must, as in the famed 12-step program, first admit there's a problem.  I'm happy to provide an extensive (but hardly exhaustive) list of issues I've personally found, all of which I guarantee to be substantive, but I do not think it is on topic for this thread.
 
> Everybody I know who works for the company, from Jeff Bezos on down, talks about how the company puts customers first.
 
Whether they do this because they believe it to be true would be an interesting discussion to have with Bezos.  He has to know there's a percentage of people like me.  If he thinks our issues are substantive and truly wants to put the customer first, you'd think he'd be reaching out to us.  However, if he thinks there is no substance to our issues and claims, then he's surprisingly clueless.  I suspect the truth is somewhere in the middle. Perhaps he doesn't know how to make VRM work in such a way as to effectively solicit our feedback.
 
> They do that, I think, mostly with low prices and efficient delivery. But one does wonder about other costs, such as the ones cited below.
 
To the extent that you pay a higher price if they believe you are price insensitive, that whole "low prices" thing is a myth.  Those who care and price shop are detected with a high degree of effectiveness and become the public voice attesting to the low prices.  Those who are less likely to notice pay more and - by definition - they don't notice.  The argument in favor of this practice is that the people paying more value other things such as service.  But I bristle over that claim because a) it's based on deception; and b) you have to deliver great service to make the claim.
 
That leaves efficient delivery. You cannot *be* an online retailer if you cannot deliver the products people buy.  Is the ability to deliver the products really the bar we set for exceptional quality of an online retailer?  I thought that would be the table stakes.  There is something to be said in minimizing exceptional cases but at the end of the day what defines great customer service is how you handle exceptions.  Amazon seems to me to be so focused on minimizing the exceptions that they figure they do not need to set a high standard when it comes to resolving them.
 
One would hope that any discussion of good companies would include their internal policies, but if we are limiting to Johannes' original criteria of companies that are good to their customers Amazon aint it.  When he posed the original question I was unable to think of a single company to nominate.  Part of the problem is that I'm old and my experience of great customer service was the indoctrination I received when I hired on at Publix.  They never aspired to be better than the competition. They aspired to be great as measured on objective criteria.  Nowadays companies seem to measure their performance relative to other companies.  Those who have become King of the Hill don't seem to notice it's a dung hill, but oh how they celebrate being on top.
 
Kind regards,
-- T.Rob
 
T.Robert Wyatt, Managing partner
IoPT Consulting, LLC
+1 704-443-TROB
 






--
Adrian Gropper MD

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