Creating Demand Data to Surge price in e-commerce Business
Earlier the local sellers didn't need any mathematical model to determine the optimal price and optimal time to serve a customer whether it be physical product delivery or service. — Alok Singh
If the price is low it reduces the profit margin and if the price is high the opportunity to serve the low-budget customer is lost. So, what to do. Projecting the demand to create situations to extract desired surged price is the illegal key. It gives rise to hoarding and other illegal practices. Hoarding is blocking the product or services to extract arbitrary future prices. Is it possible for e-commerce service providers to do so?
Today the corporate managers talk about various types of pricing models. It can be:cost-related pricing, competitive pricing, value-based pricing, premium pricing, skimming pricing (i.e. high price when technology is new), dynamic pricing, surge pricing, and other pricing strategies. There does not exist any mathematical model which could answer the concerns of the price of local sellers, whether they sell local products or they sell local services. The local price evolves over local data. Now local data is missing. So, local business has additional risks of taking decisions based on older data or few data points.
Earlier the local sellers didn’t need any mathematical model to determine the optimal price and optimal time to serve a customer whether it be physical product delivery or service. The whole local market was aware of the demand as the data related to customer footfall and data related to other factors were publicly known and shared among the various business on automatic mode. The local market knew the local trend. But the arrival of big e-commerce companies has declined access to the customer demand pattern to these local markets. So, the local market is at a huge disadvantage to understand the demand pattern. This affects their business adversely. They were already struggling with big e-commerce companies on discounts and prices due to money burning model practiced by these big e-commerce companies. Now they are losing access to actual demand pattern data.
As the demand appeared the product and services followed. Before arrival of e-commerce the data was visible to everyone. Global customers also had to interact with the local sellers. In this environment, the local sellers had the control and the data. The customer also had the control and the data. Based on these data and the control, the buyer and seller could do business with the latest information based on mutually agreed prices for products and services. Moreover, the data was shared and everyone in the local community could figure out the sales, volume, and demand of the value chain. The business community could accordingly prepare for the upcoming demand of complementary, substitute, allied products, and services. Such a business model is more self-regulated. The local community can understand well the necessity for a product or service to ration and could also figure out more efficiently if someone is attempting to hoard the service or the product to create an artificial surge in the price, and could arrest such malpractices. It was the foundation of stable and sustainable business. The foundation has been weakened by the big e-commerce companies.
If someone needs a service urgently it can be spotted by the service provider immediately and the service delivery is planned accordingly. A human decided the priority and not the algorithm based robot. The price was not the sole variable to decide whether it’s urgent or not. The unorganized data also helped the local business to forecast trends and based on those trends the local business could create demand perception and based on that perception they priced their product or the services. It allied with the strategic data which is also unorganized and is handled by the top management of the company.
Based on experience which has been earned by analyzing the data in the subconscious mind over a long period of time the local business person can analyze their customer and the price of product or service which the customer will be willing to pay. Sadly, such an experience is dying. The data is captured by a few and is kept in the server-vault of few big technology companies.
When there were no e-commerce platforms, the pricing was easier to determine by the local sellers. In today’s e-commerce environment the pricing is difficult for the local service providers and the local manufacturers and local sellers to determine. The data is no more localized, it is in the vault of the e-commerce companies who use such data to maximize their profits by optimizing their pricing strategy to control the whole business in a particular sector. Whether it be the sector of taxi services or utility services or grocery services or vegetable services or stationery services or anything from daily uses, you name it they have it. There are services like the cleaning, painting, appliances repair, electrical repair, pest control, carpentry work, massage, hair cutting. We can have big e-commerce coming in cobbler services, cloth patching services, key maker services, or those service which are left out today.
The new knowledge, the new technology, the ever-changing new business practices, and the continuous improving service and products are welcome. Bu the application of all these to kill the established control of the local business is not welcome. Such applications need to be strongly regulated.
Before the arrival of e-commerce platforms, the illegal practices of hoarding or diluting, or mixing or quality compromise could be complained by the customer, checked by the authorities, and punishment can be awarded by the court to the culprits. But how to figure out whether the demand for a particular product or service is high so price rise is justified based on the simple economics of demand and supply. It’s not simple economics in the case of e-commerce. It’s the hidden data, the controlled data which has made these e-commerce companies more tools to cheat the customers by surging the price whenever they wish. On the philosophy that “customer is king” these big e-commerce can be labelled as tax thieves, as well as data thieves and need strong regulators. The new philosophy should be “Society is the King”. The policy makers has to come up with ways to make available the data of local customer to local markets. The data which is in the trap of these big e-commerce companies deserves freedom.
(Alok Singh is a Fellow of the Indian Institute of Management Indore and currently is faculty of general management at NICMAR, Delhi-NCR Campus.)