Dynamic-Price Shopping Channels

Bob Leggitt | Monday, 23 January 2012 |

I’m not mentioning names, but you’ve all seen them. The TV shopping experiences where each deal is made to look like the opportunity of a lifetime, with prices plunging lower than ever before, and virtually no chance they’ll ever plunge as low again. Buy at the perfect moment, and you get an amazing deal. But of course, it’s always the “perfect moment”, which is why so many customers feel they’re onto something special, and why dynamic pricing is such a success for the TV shop.

Dynamic pricing is a method of tailoring the cost of goods to suit market conditions at any given point in time. It’s all about charging people whatever they’re prepared to pay. This can appear to be in the buyer’s interests, but it really depends on who’s buying, and who’s selling. If the seller has the gift of the gab and the buyer is not greatly clued up on the market, then far from getting an unbeatable deal, the buyer is likely to pay over the odds. Conversely, with static prices (such as those you’d find in the supermarket) the less savvy buyers are to a large extent protected, because everyone pays the same for a given product, and the supermarket is forced by the savvy buyers to set its prices at a reasonable rate.

So actually, dynamic pricing can be considered a good way of exploiting the less savvy buyer. And it suits TV because the audience is so big. Out of the many thousands watching, there’s always bound to be a small number who can be persuaded that a deal is much more favourable than is really the case. With dynamic pricing, a shopping channel always has the scope to charge more, when the opportunity arises. Channels with static pricing can’t maximise profit in the same way. They can guess what sort of price people are likely to tolerate before marking up the product, but they can’t then tailor that if it suddenly transpires, in the moment, that a lot of people are prepared to pay more.

Typically on a dynamic-price TV channel, the prices will start high (often massively higher than the realistic retail value of the product), and then fall. The idea is to create through comparison an illusion in which the customer is getting a phenomenal deal. The starting price is not advertised as having any relationship to actual value, but it’s inevitable that some viewers will by assumption regard it as some kind of indicator as to value, and therefore be impressed when it drops so sharply. The presenters (or driven salespeople, to give them a more appropriate title) will frequently appear shocked when prices fall to particular levels, or claim the deal is some kind of mistake. This is all part of the illusion. They’re never shocked. And when real mistakes occur, the details are off the screen before you can blink, with the whole thing quickly swept under the carpet.

I’m going to use a group of British dynamic-price channels as the model for this piece. These channels employ a classic over-complicated sales model. Stock is deliberately limited to what’s usually just a fraction of the company’s actual holding. This allows the company to control supply and demand (which helps them control the prices), and to create time-pressure, designed to induce in the customer rash decisions tantamount to panic-buying. The concept (from the business’s viewpoint) is to get the customer so wrapped up in the buying process, and in the competition against other customers to grab the falsely limited stock, that he/she overlooks obvious flaws in the transaction. The fact, for example, that he/she doesn’t know enough about the product to make an informed decision on its real usefulness or quality, and hasn’t had time to compare the deal with those offered by other vendors.

A customer might, for instance, buy a ring without considering whether or not it will fit. Sounds stupid, but if the salesperson focuses on an evocative story behind the stones in the ring, and then suddenly throws the potential buyer into a contest to get hold of a very limited quantity in a matter of seconds, it’s impossible for the customer to properly consider every aspect of the acquisition. Technically, products can be returned for a refund, but the customer will not get a full reimbursement of all the money they’ve spent, so buying and then returning represents a waste of money. In fact, some of the sales pitches have little to do with the actual product at all, and are far more closely centred around superficial issues like ‘bargain factor’, ‘saving’, and the ‘game’ of the purchase.

ADVICE

Actually, the advice I'm most comfortable giving would be not to buy from these channels at all. They don’t typically represent the cheapest way to get hold of the products they sell, and much of the stock appears to me to be of low-end quality, of poor design, or of low aesthetic appeal. It comes across as stuff that’s been bought in because it was going cheap, rather than because the company specifically wanted to source and sell that item. Even setting all that aside, these channels are not a good way to buy because you’re committing money before you’ve even had chance to ask any questions or find out everything you need to know. However, if you do want to use the channels, I’m not here to stand in your way. I’d merely ask you to consider the following…

You’ll pay a premium if you buy when the quantity is small – especially at peak times. If, for example, just 3 units are available in a quantity, supply and demand is likely to ensure that the price you pay is inordinately high. There’s always a handful of people who’ll pay over the odds for something, and those will be the people you’re competing against when trying to buy one of just a few available units. There’s simply not enough room for the more shrewd buyers to force the price down to something more reasonable.

Buying at peak times will in itself add a premium to the price. The more people there are watching the channels, the more demand there’s likely to be, and that demonstrably has an impact on closing prices. In other words, you’ll most likely pay significantly more on a Friday evening than for the same item on a Monday morning. The channels also tend to use their most potent salepeople at peak times, which potentially inflates the prices even more. Even if you’re not influenced by that salesperson, other people will be, so the price ballpark will be higher.

Bear in mind that postage/packing and call costs can dwarf the onscreen selling price of small, cheap items. A low end watch may look like a bargain at £3, but if you’re adding around £10 to that in peripheral charges, you may well be able to find something else cheaper and better on the high street. One of the presenters admitted back in autumn 2009 that she wasn’t really allowed to mention the postage and packing, so clearly the channels know the P&P is something a lot of viewers will overlook.

Contrary to what some presenters claim, you are not somehow “controlling the prices”. Of course, the market in general does dictate a price ballpark for everything, but the channel always has the ultimate say on where the price stops falling. It used to be that the price had to fall until the entire allotted quantity had sold out. But since 2008, timers have been used to conclude sales even when a large amount of the initial quantity remains. So if the channel says it’s selling 100 cameras, it might only end up selling 25 before the timer is employed to shut down the sale. The timer, or clock, means that the quantities can be just as dynamic as the prices. The introduction of timers was one of the most negative developments for customers of the channels, because it rendered the original billed quantity meaningless as a guide to how low the price was likely to go. Simply, the clock gave the channels the wherewithal to move the goalposts at any time, and freeze the price wherever they wanted. Since the clock was implemented, closing prices have been entirely under the channels’ control, and in my opinion, on average, significantly higher.

Be aware that the presenters lie, and they lie a lot. They say they’re not allowed to, and in theory that’s true. But in practice, no one can really stop them. Most of the lies are impossible to prove. For example, presenters say they absolutely love everything they sell. They don’t, obviously. No one could have tastes as limitlessly broad as that. But can anyone prove the presenter doesn’t really love a specific item? No. So they can lie, and no one can do anything about it. It’s the same with the “mistake” prices. Producers would be rapidly fired if they made the number of “mistakes” which supposedly arise on those channels. But again, try proving someone didn’t make a mistake, when you can’t even see them. Once again, you can’t.

Sometimes, conversely, it can be easily proved that the presenter is lying. I’ve heard one presenter, for example, often say: “We were looking for £xxx on this item”. But on a number of occasions the statement couldn’t possibly have been true, because at no point did they ever set the price at that figure and attempt to charge it. Why do they get away with these obvious lies? Because no one’s got the time or gives enough of a toss to lodge a formal complaint with the regulator. Regulators don’t sit watching the channels from morning ‘til night. They wait for someone to complain, and then they investigate the complaint. And if no one complains, the regulator does nothing, so the channel can lie to its heart’s content. Never think that just because someone’s not technically allowed to lie, they’re not constantly doing it. All salespeople perpetually lie. They’d never succeed if they didn’t. And that includes the presenters on the static-price 'posh' channel. They might be slicker and less obvious at lying than presenters on other channels, but they still do it. They're all salespeople, afterall.

Never be persuaded that phonelines are being locked to “make things fair for everyone”. How can things not by default be fair for everyone? If anything, locking the phonelines makes things less fair, because it allows channel-hoppers to compete for a product with loyal viewers who’ve been watching for a whole hour. The real reason phonelines are locked is to create panic among buyers and get them to waste money on calls in the hope of beating their competitors to the ‘bargain’. The number of people who call the premium rate number without making a purchase was acknowledged on air by one of the presenters as running into thousands per day. As a premium rate phone service alone, these channels can make a vast amount of money, and locked phonelines are a significant contributor to that. It doesn’t matter how many times a presenter says: “Don’t call” – the channels know people will still try to buy on locked phonelines, because they’re being motivated to do so by panic and fear of losing out.

Never be persuaded that the channel is “losing money”. It’s not losing money, and it won’t perpetually sell at a loss, as sometimes appears to be the case. No business could possibly survive if it did that. The real ‘loss leaders’ (a few TVs selling for £1 each, for example) are extremely rare, and are in any case so over-subscribed in terms of interest that attempting to buy them is no different from entering a raffle. You pay your £1.53 call cost, cross your fingers, and almost certainly lose. Even with these ‘loss leaders’, the channel probably doesn’t lose money, because large numbers of callers will try to bag the bargain, and all those premuim rate calls subsidise the massive discount on the product.

Never be persuaded that you can sell a product for a higher price on ebay or via other methods, than the price at which the channel is selling it, on TV. A TV channel has just about as high a profile as it’s possible to get. If their highly-driven TV celebrity salesperson can’t sell the goods for any more money to an audience of thousands and thousands of viewers, the likelihood of you doing so with virtually no publicity at all is in the general area of nil. Equally, don’t believe the line about the channel expecting dealers to start buying the product because the price is so incredibly low. Real dealers do not buy their stock from TV shopping channels!

The dynamically priced shopping channels can unquestionably be entertaining. In fact, they’re very often some of the most entertaining shows on TV. I watch them a lot, as you can probably tell. As long as you recognise how the channels work, and what’s really going on, they’re harmless. But if you take everything they say at face value, and believe the deals they offer really are remarkable, you’ll end up disappointed. In summary, they’re a good bit of entertainment, and they sell unremarkable goods for unremarkable prices.

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