April 29, 2019
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1 big thing: The death of prices
In the latest phase of the desperate race to survive against Amazon's immense selling power, brick and mortar stores are increasingly aping one of the retail giant's most potent practices: dynamic pricing.
Kaveh reports: This increasingly popular tactic — in which a seller constantly adjusts the price of its products, for example hiking hotel prices during a big convention — benefits both buyers and sellers, its defenders argue. But as pricing is increasingly automated, the dangers include gouging and discrimination.
"We are headed, long term, in the direction of prices that are constantly changing, either by time of day or by individual or by demographic type," says Joseph Turow, a media and marketing professor at the University of Pennsylvania.
The big picture: The price for any given item on Amazon.com changes every 10 minutes, on average, driven by insight the company gleans from many millions of shoppers' habits and preferences.
- This allows Amazon to stay ahead of the competition and respond to minute changes in buying patterns even over the course of a day.
- It's a huge leg up over mom-and-pop retailers who set prices and then largely leave them alone.
But consumers, already accustomed to price spikes when certain goods are in high demand, are seeing them pop up in unusual places.
- You're most likely to see prices fluctuate for transportation, such as when ordering an Uber, shopping for an airline ticket or paying for a tank of gas.
- But other sectors are experimenting with it.
- Grocery stores are installing electronic price tags on their shelves, allowing them to remotely change the entire store's prices based on supply and foot traffic.
- Restaurants are testing whether people are willing to pay a premium during busy times.
- Big entertainment venues like theme parks, concert halls and ski resorts are charging more during peak popularity.
This is just the beginning. "Dynamic pricing is inevitable," says Alex Shartsis, CEO of Perfect Price, a startup that sells software allowing companies to deploy the practice on their own wares.
- Shartsis' current customers include rental car companies and gas station chains. But he says Amazon's long and growing shadow is a powerful motivator for companies to try new tricks.
At its best, the tactic can curb waste — such as by automatically lowering the price of perishable produce if it's overstocked, or soon to go bad — and keep products available by raising prices as stock dwindles.
- But unchecked, automated systems could send prices for staples like water skyrocketing after a disaster: price gouging.
And taken to its extreme, experts worry that completely individualized pricing can harm certain buyers.
- Different prices could be charged according to buyer profiles factoring in race, gender or other sensitive shopper information, whether directly or through a proxy like a zip code or purchasing history.
- As AI automates price-setting, the factors on which these decisions are based are further hidden.
- "It's totally opaque," Turow says. "People don't know why they're being targeted, and in what way."
2. Amazon's next target: shipping
In a new example of Amazon's pricing strategy, it appears to be lowballing rivals in a classic squeeze to take over yet another industry: freight.
Erica writes: With its track record of upending nearly every business it enters, Amazon has the potential to decimate UPS and FedEx as it moves into shipping. Its tactic is a modern example of putting competition through a Rockefeller-style “good sweating.”
"Amazon is turning areas of the business that were historically costs into new revenue streams," says Gartner L2 analyst Griffin Carlborg. Shipping could be a massive source of profit for the tech giant — U.S. companies spent $1.5 trillion on moving goods in 2017, reports WSJ.
- Amazon's online trucking platform is already undercutting the big players' average shipping rates by up to 33%, reports FreightWaves.
- The behemoth can also scoop up customers with its top trust rating. Raymond Neal, an independent bookstore owner who sells on Amazon, tells me, "People pay more for the same book if it's 'Fulfilled by Amazon,' or Prime."
- Logistics incumbents should worry, Carlborg says. "[Amazon is] breaking into new industries by offering services that are too good to be true or prices that are too good to be true, and figuring out opportunities to monetize it later."
Analysts say it’s a familiar strategy. Amazon has tried to grab customers from sellers on its site by debuting cheaper, private label products right alongside the existing selection.
The company denies the lowballing: "We work with many line-haul service providers in our transportation network and have long utilized them to carry loads for Amazon. This service, intended to better utilize our freight network, has been around in various forms for quite some time. The analysis suggesting dramatic undercutting of pricing is false."
The big picture: As we noted when Amazon announced 1-day shipping, one way the company can slash delivery times for Prime is by building its own logistics network — chipping away at its reliance on the big shippers.
3. A fetish for healthy vegetables
- Farming of sweet potatoes surged by 37%, to about 173,000 acres (and up 64% from 2007). If it's because people think sweet potatoes have fewer carbs than white potatoes, they are right, but only by a smidgen.
- Spinach cultivation jumped by 52%, to some 70,000 acres.
- Broccoli is up 13%, to 132,700 acres.
4. Worthy of your time
The meteoric Len Blavatnik (Devon Pendleton — Bloomberg)
Gig work: When options are none (Felix Salmon, Kia Kokalitcheva — Axios)
Russia and the North Pole (Nastassia Astrasheuskaya, Henry Foy — FT)
From the iPhone to the no-meat burger (Yoolim Lee — Bloomberg)
Kidnapping: An efficient business (Anne Diebel — NY Review of Books)
5. 1 wrinkled thing: Fight to save the raisin
As we've reported, millennials turn their collective noses up at mayonnaise, mainstream beer and American cheese. The latest reports are that they are doing the same to raisins, the default snack for school lunch bags for generations.
Producers fight back: For some months, Sun-Maid, the producer of 40% of U.S. raisins, has said it does not intend to be made obsolete. But how will it avoid that fate?
In the NY Times, Jonah Engel Bromwich profiles how the tension has played out in California's Central Valley, home of the Thompson seedless grape, which is mostly dried into raisins, as farmers seek to save themselves.
One thing favoring the producers: Unlike the other victims of changing tastes, raisins are actually not bad for you. For those traveling in tough conditions, for instance, they are a good source of a quick energy jolt.