The Internet Makes It Possible for Companies to Tie Prices

According to Modahl, most traditional companies have sought to measure demand for their products and services. For example, grocery stores and other retailers regularly collect point-of-sale data in an effort to monitor what is selling and what is not. The problem for traditional businesses has always been one of getting such information in a timely manner. In many companies, even today, point-of-sale data may not show up in printed reports until weeks after the sales have occurred.
In contrast, many or most e-commerce companies collect and make available to decision makers point-of-sale data as the sales occur. Companies like Amazon.com actually measure demand in advance of sales by taking prepublication orders for books and music CDs. Others, such as Priceline, let consumers submit a kind of “request for proposal”—“I would like to purchase a one-way coach ticket from New York to LA on this airline for $$$$”—and allow companies to respond—“At this airline we have a seat available on this flight for $$$$.” Modahl predicts that the availability of such current information will force all companies to change the way they measure demand and set prices.

In the past, suppliers set the market agenda, determining which products to sell and at what price.The successful companies were those that did a good job of estimating future demand. Of course, no company ever estimated demand exactly right, so gaps existed. Sometimes, companies missed the opportunity to sell, when demand ran higher than available supply. Other times, they made more than the market wanted and had to write off inventory. Using primitive tools like monthly retail reports, companies tried to adjust to demand, but their ability to react was limited. . . . On the Internet, companies will measure and respond to current demand: what consumers want now.As they do, they will change the dynamics of competition.When consumers set the agenda, it is more important for companies to be able to respond quickly than it is for them to predict well. In Dynamic Trade, companies that can adjust the prices and quantities of goods—their supply—more closely to consumers’ current demand will succeed.This eliminates the gaps between what consumers want and what companies can offer them.

Modahl predicts that the consumer industries most vulnerable to these demand affects will be the ones that are characterized by temporary hits or fads (such as movies and music), focus on events (such as sports and entertainment), or operate on a seasonal pattern (such as fashion and toys). Regardless, they represent a capital P problem for the pricing P.