Monday, July 29, 2013

Mobile negotiations: The death of the price tag

Price tag
The price tag was invented by John Wanamaker in the 1870s. Before the invention of the price tag, most buying was done through negotiations. Negotiations provide an avenue for a buyer and seller to understand each other’s needs better. For thousands of years sellers would negotiate with their customers and learned a lot about what the customer cared about. The weakness in this approach started to surface with theinvention
of the department store. The increase in sales volume made it impractical to negotiate every sale on the spot. That is why Wanamaker’s idea “if everyone was equal under God, then everyone should be equal under price” ended up being such a hit. Businesses and consumers would lose the ability to communicate what matters to each other, but would benefit from an invention that made shopping much easier.

The price tag suited the marketing philosophy of the era well and quickly took over as the way business
was carried out. The late 19th century marketing philosophy was very different from the modern
marketing philosophy. Today understanding customer needs is extremely important. We live in a search
society and vocalize our needs hundreds of times per week with random queries on Google. Marketers
sift through these queries to try to figure out what matters to customers. This data is then used to modify
all aspects of the product and business model to better satisfy the customer that a business chooses to
serve. Figuring out what really mattered to the customer was not as important as it is today. In the late
19th century the product came first, not the customer. Marketing was all about convincing you to buy a
product they already made.

Even 40 years later individual customer needs did not matter as much. Ford famously wrote in his 1909
autobiography: "Any customer can have a car painted any color that he wants so long as it is black".
General Motors started to change this in the 1920s with the creation of the color research lab to provide
customers color options and in 1926 they introduced the idea of rolling out a new car model every year.
Even with these ground breaking innovations, there was still a limit as to how far a business would go to
cater to individual needs. This was because making stuff required large investments in factories that
could not be easily changed to cater to many needs.

The search society we have become is one assault on the humble price tag. Another assault comes from
the fact that making stuff is becoming less expensive and we are on the verge of a mass customization
society. As new technologies like 3-D printing develop, customers will come to expect products to be
designed to fit their specific needs like a glove. Businesses that understand their customers the best and
meet those needs most closely with new ways of making stuff, will be the winners in the mass customization future.

Let’s not jump too far into the 3-D printing future and let’s instead talk about what mobile negotiations can
do for us right now. All negotiations are really opportunities to capture value that is inevitably left on the
table. Let’s say I’m staying at a hotel and I value the following things, they are listed in order of
importance: being picked up from the airport, VIP access to the club, VIP area by the pool, a complementary cigar and a hammock by the beach. There is absolutely no way for me to communicate
these needs to the hotel. The hotel misses the opportunity to learn what really matters to me and the relative importance I place on each of these things.

Further, let’s say that the hotel really prides itself on having a dozen bell hops, a casino, Frette Linens,
DVD Players, Daily Newspaper, Alarm clocks, Individual thermostat control, GE Advantium Convection
Oven, etc. There is no way for me to communicate that I really don’t care about any of these things. If I
had the ability to communicate what mattered to me and the order in which these things mattered, the
hotel could change its business model to better suite my needs. Of course, it would be foolish for them to
modify their business model for just one person, but with data from enough customers they may want to
modify their business model. This could help them maximize profit with their current customer base or
increase revenue through new more precisely satisfied customers.

This would be great for the hotel, but it would also be great for me. Not only will have I have more of my
needs met, but the happiness per dollar would improve. Through the negotiation process, the hotel and I
can trade things of unequal value. I may really value something that the hotel can satisfy easily and vice
versa. The value does not have to be expressed in price. A hotel has thousands of ways it can create
value for a customer from a free dinner, to accelerated check out. A customer also has thousands of
ways to create value for a business. Some customers are more expensive than others because of their
needs and how they ask that those needs to be met. For instance, a customer can choose to have the
AC in the room set at a moderate temperature instead of keeping it really cold.

The third assault on the price tag comes from the increased comfort people have making purchases on-
line. This means that the negotiation can happen on-line and not in person. A hotel could route the
negotiations to a negotiation center in India where a customer service agent can negotiate the
transaction. The 1870’s scalability problem of face to face negotiation goes away.

Understanding customer needs and preferences is critical in a search society that expects highly tailored
products and services. Technology is now allowing businesses to reengage their customers with a
method that was preferred for thousands of years. Using a method from the past will be the key to
satisfying the customers of the future.

Ramon Andino
Author, inventor, creator and mobile negotiations expert

Ramon Andino is the creator of zopaf, a novel salary negotiation app. The app couples the Harvard
Business School negotiation class with his experiences modeling jet engines at GE. Together, these
experiences are helping the world unlock and capture value that would otherwise be left on the table. The level of insight provided by zopaf was only available to a select few, until now

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