Are pricing bots a boon or bane for consumers?

Discussion
May 10, 2017
George Anderson

It’s a common plot twist — a scientist invents a new medicine or technology intended to help humankind, but in the end its original intent is perverted to cause harm. Such may be the case with so-called pricing or shopping bots.

The idea behind the tech is pretty straightforward: an application is created that automates price checks of competitive websites. This allows a retailer to respond almost instantly to price changes made by rivals that could put the company at a competitive disadvantage.

The upside for consumers is clear: retailers constantly jockeying for a price leadership position assures that shoppers will not be paying more than they should for a given item. Consumers often conduct online searches to double-check prices listed by retailers.

A cottage industry has grown out of companies keeping tabs on Amazon.com’s prices. Engineers at Walmart, Reuters reports, were given “a rude surprise” earlier in the year when the proprietary tech they used to track Amazon’s prices stopped working. Bots used by Amazon were thought to have thrown up a shield against Walmart’s price probes. This forced Walmart to use secondary sources to keep pricing tabs on its rival.

While Amazon and Walmart are engaged in a pricing battle designed to gain consumer market share, a recent article on The Economist site investigated whether bots are being used by some retailers to engage in “tacit collusion” to improve profit margins.

In the book, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy, authors Ariel Ezrachi and Maurice Stucke point out that the use of artificial intelligence could lead to “tacit collusion on steroids,” perhaps even cases in which erstwhile rivals are keeping prices higher without being fully aware that it is happening.

In a review of Messrs. Ezrachi and Stuckle’s work, The Complete Review cites the use of algorithms to adjust prices to improve profit margins on an individual and ongoing basis. The authors suggest that this is a form of individualized discrimination by which prices are based on what a consumer is likely to pay rather than a base market rate.

DISCUSSION QUESTIONS: Do you think pricing bots are a boon or a bane for retailers and consumers? Do you see that changing in the years to come?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Consumers are more empowered than ever to compare prices, leading to algorithmic pricing that largely benefits consumers."
"Dynamic pricing for individual consumers? We are learning every day that the customer is in charge."
"Pricing bots are just the digital equivalent of your neighbors telling you who has the best sales this week."

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21 Comments on "Are pricing bots a boon or bane for consumers?"


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Max Goldberg
Guest

Boon or bane, price bots are here to stay. From the dawn of competitive retail, merchants have shopped each other’s stores. Bots allow retailers and consumers to search hundreds if not thousands of stores’ prices in seconds. If retailers start to use bots and AI to dynamically price individual consumers, which most consumers don’t like, customers can take their business to a different merchant who is only a click away.

Sterling Hawkins
BrainTrust

Price bots are definitely here to stay and the guidelines humans set for the system are really the ultimate determining factor of how they’ll operate. They can be hugely effective for both retailers and consumers; the opposite can also be true. The struggle exists as part of an AI-driven invisible hand that’s far more efficient and responsive than humans could ever be. The trick is making sure we have them pointed in the right direction.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
2 years 6 months ago

I agree they are here to stay. But I’m also sad. Because retailers are falling into the rut identified by Sergio Zyman: In the absence of meaningful information, consumers (and retailers as a result) fall back on price.

So may of the trends we see in retail are nearly purely price based. And that is the opportunity for the wise retailer: find meaning and you’ll reduce price dependency.

That said, bots to discover competitive pricing are important. Fanatically changing your prices as a result is where I’m more concerned — that leads stores to give up their value.

Chris Petersen, PhD.
BrainTrust

Competing on price is a slippery slope … and pricing bots grease the slide for a faster ride to the bottom.

Naomi K. Shapiro
BrainTrust

This whole discussion is about 3 years late. Back then, retailers, using established price competition solutions, tried to compete on price and found out that it’s a losing matter. Now wiser, retailers, using established, sophisticated price competition solutions (as opposed to cottage industries), are applying price strategy initiatives to scientifically determine what would be the best price to charge for the greatest profit margin. And it works! The reason you don’t hear much about it is because retailers don’t want their competition to know that they are using sophisticated price intelligence tools. Either way, the consumer benefits in the end — getting either the lowest, or the most competitive price.

Keith Anderson
BrainTrust

There are reasonable questions and concerns about the potential impacts of algorithmic pricing for both consumers and brands. From the consumer point of view, unfair price discrimination would be a cause for concern. And for retailers, intensifying price competition could negatively impact margins.

That said, there are scant examples of algorithmic pricing leading to higher prices on identical items across retailers or price discrimination at the individual shopper level. And consumers are more empowered than ever to compare prices, leading to algorithmic pricing that largely benefits consumers.

And while price competition can be challenging for retailers, many are managing admirably by competing on non-price factors like convenience, experience and differentiated assortment.

I expect the role of competitive data and algorithmic pricing and promotion to grow. It’s already table stakes in some segments of the industry, and leading retailers are already using more sophisticated approaches to make assortment, pricing, promotion and content decisions more effectively and efficiently.

Shep Hyken
BrainTrust

Pricing bots are the next generation of technology to help consumers price check for competitive prices. When the app Red Laser became available (and similar apps), the consumer would scan a bar code and instantly get local and online pricing. Pricing bots are simply a more convenient/faster way of getting similar information.

People will always be interested in knowing if they are getting a fair price — not necessarily the lowest price — however the value the retailer provides (knowledgeable sales people, support, customer service, etc.) will also be a major factor in a consumer’s decision.

Patricia Vekich Waldron
Staff
Patricia Vekich Waldron
Contributing Editor, RetailWire; Founder and CEO, Vision First
2 years 6 months ago

All technologies can be used for good or evil!

Gib Bassett
BrainTrust

Price is never going away as possibly the top consideration for most products and this technology will only reinforce this reality. It places immense pressure on retail to be super efficient and responsive and equal pressure on retailers to understand their customers. Some retailers will try to get out in front of price by proactively engaging their customers in a value-added relationship based on interests, life-stage or lifestyle. If they don’t then it’s too easy for a customer to transact with the lowest-cost provider.

Stefan Weitz
Guest

I’ve always thought it curious that we have MSRPs that are static. It seems like a more market-driven approach (with speed brakes to guard against gouging) that prices products based on their demand curve at a micro-level is a more rational way to conduct business. The mere act of setting an MSRP is sort of funny when you think about it: some planner in a business takes often slate macro-economic data to set what she thinks the market will bear — in many cases months in advance of the introduction.

All that being said, I can’t even imagine the headaches market-driven pricing would create for producers as suddenly their margins are highly variable — and products for which they’ve over-engineered suddenly can’t command enough revenue to cover their costs.

Lee Kent
BrainTrust

Until retail finds the magic bullet for selling service above price, bots are here to stay. And even after, there will always be certain staple-type items where it is all about the price. Dynamic pricing for individual consumers? We are learning every day that the customer is in charge. If they don’t like it, they will pack up their marbles and go elsewhere. It’s that easy.

And that’s my 2 cents.

Ricardo Belmar
BrainTrust

Bots and AI technology that monitor competitive pricing for retailers encourage a race to the bottom on price! This is a dangerous path for many retailers if left automated and uncontrolled. While retailers have always monitored competitors’ pricing in some manner, this type of automation brings new levels of speed into the equation. How the information is used by retailers is the tricky question! While consumers love to know they’re getting a great price deal, they are also wary of technology that implies one person may pay a different price than the next. In that model, everyone doesn’t receive the lowest price every time. It’s too early to tell if this technology will be a boon or not to retailers or consumers.

Art Suriano
BrainTrust
I know that technology is moving at a rapid rate and it’s impossible to slow it down or even attempt to control it. There will continue to be many new concepts and technological advances and bots may have a place for many shoppers. The risks are there as with any technology but sometimes the phrase “less is more” holds true. Today there just might be too much emphasis on the lowest price, the fastest delivery and the best rewards. At times it’s becoming a contest. Retailers are struggling with slumping sales and no growth. What I see as the game-changer is the one area that most businesses have lost sight of and that is providing “excellent” customer service. I say this because so many companies invest in the newest technology, must have this and must have that. Walk into their stores and there’s no one to greet or assist you. So bots, are they a good idea? Maybe. But will it make customers jump and buy from you? Or will having a competitive price, adequate… Read more »
Pavlo Khliust
Guest

Nowadays retailers need to use pricing bots and other AI/data-collecting tech to stay relevant and secure their market shares. The situation will not change in the years to come, despite the possible misuse of such tools. Algorithms will become more intelligent and become tools in a war for consumers in a technology-driven world, where companies with more adaptive and consumer-engaging solutions will prevail. That will stimulate the growth of investments in software development, therefore improving customer experience.

Adrian Weidmann
BrainTrust

As noted already, price bots are another technology whose blade cuts both ways. Hotels and airlines have been using pricing optimization algorithms for years and in many cases the game of supply and demand can cost consumers money. Once “they” (I’m reminded of the Gary Larson cartoon) get smart as to your search patterns and objectives the price starts going up every time you return to the same search. It makes booking hotels and airlines a bit of a cat-and-mouse game.

Shopping is a journey and shoppers want to discover a good deal but they will also want to share it with friends and family. Almost like showing off their discovery. Price bots will eliminate this sharing game as the price for the next person may be higher or lower. The consumer will almost always benefit from competitive pricing. The challenge for the brands and retailers is trying to remain competitive while offering quality products and services — a difficult balance to maintain.

Camille P. Schuster, PhD.
BrainTrust

Bots are here to stay. If the pricing information and changes by the retailer were also available to consumers the transparency would level the playing field.

Cheryl Sullivan
Guest
The bots and their algorithms merely match products and collect the competitive price data. It is what retailers do with the data that is crucial. If you are merely using it to employ price-matching policies and igniting price wars or raising your price because the competition did, then no one will win. However, those retailers who are leveraging the competitive data along with the most advanced AI/Machine Learning price optimization technology can and do use it responsibly to create a win/win scenario — giving shoppers the prices they view as fair and that they are willing to pay while also achieving the retailers’ strategic and financial objectives. Price optimization is not a new concept and that science can and does put the shopper first. It understands the shopper’s price sensitivity levels for products to set the optimal price. It won’t violate trust and raise the price just because the competition did nor will it automatically lower when any competitor drops its price. In fact, it’s smart enough to understand how competitors impact their shopper demand… Read more »
Naomi K. Shapiro
BrainTrust

Nice summary.

Anand Raman
Guest
I believe that price bots, AI and Machine Learning-based advancements in the world of commerce are part of natural evolution of the ecommerce technology stack. They are hear to stay and they will play a significant part in (re)shaping the commerce landscape for all the parties involved in it — retailers, brands & consumers. First came price parity between online and in-store, next came price matching guarantees, and now pricing based on competitive data. Thanks to price bots, consumers now expect price parity across various retailers. Dynamic pricing is a whole another topic. If you are using competitive pricing data as a major (in some cases ONLY) input to dynamic pricing and not think about the in-market consumers, then I agree dynamic pricing is the race to the bottom. I think this is where there is a huge potential for retailers and brands to differentiate themselves. We all know that “not all consumers are created equal” so they should not be treated equal. Retailers and brands should fully embrace what the technology has to offer… Read more »
Ryan Mathews
BrainTrust

Pricing bots are just the digital equivalent of your neighbors telling you who has the best sales this week. People love to think they are getting the best deal, whether or not that’s actually true and whether or not that actually influences their final purchase decision. I think there will always be some form of pricing bots, but I don’t think that — beyond the lowest income shoppers — price will be the greatest determining factor in most pricing decisions. A factor? Yes. An important factor? Sure. But the single driver? I doubt it.

Michelle Grant
Guest
2 years 6 months ago

I’m curious about how algorithmic pricing works in an omnichannel world. How should retailers view pricing in their stores when their online prices keep fluctuating?

wpDiscuz
Braintrust
"Consumers are more empowered than ever to compare prices, leading to algorithmic pricing that largely benefits consumers."
"Dynamic pricing for individual consumers? We are learning every day that the customer is in charge."
"Pricing bots are just the digital equivalent of your neighbors telling you who has the best sales this week."

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