With Fares Constantly In Flux, Price Tags May Be On Their Way Out
RACHEL MARTIN, HOST:
Everything has a price, but the price tag was only invented about 150 years ago and now it may be on its way out. Jess Jiang, from our Planet Money, podcast explains.
JESS JIANG, BYLINE: For centuries, people haggled - a customer walks into a store, the owner sizes them up, names a price, the customer might balk, but eventually they strike a deal. Robert Phillips, from Columbia Business School, says, for a while, most people were cool with haggling, except this one religious group - the Quakers. They thought charging different people different prices for the same thing was morally wrong, and a couple hundred years ago, they did a pretty radical thing.
ROBERT PHILLIPS: They would have a fixed price, the Quaker would say what the price is and that price would be the same for everybody.
JIANG: The Quakers were a small minority with their no haggle rule, but it got people thinking. The modern economy was growing, stores were getting bigger and haggling for everything was a hassle. Around 1870, little slips of paper with prices started appearing at two stores.
PHILLIPS: Here in New York - Macy's. The most famous one was Wanamaker's in Philadelphia.
JIANG: Wanamaker and Macy were building department stores and they needed to hire all these workers. The price tag meant they didn't have to train new clerks to be expert hagglers.
PHILLIPS: All they had to do was be essentially what clerks are today, you know, knowledgeable about the fabric - oh, Madam, this would look wonderful on you.
JIANG: And customers loved it. The price tag spread and thrived for a century, and it might have lived forever, if not for airlines. The price for airlines used to be set by the federal government. It was like a price tag carved in stone. It didn't matter if you booked a week early or two months early or even what airline you flew. You paid the same price, until the 1980s, when Congress essentially told airlines charge whatever you want. Bob Cross worked at Delta then. He says Congress's move created chaos at the company.
BOB CROSS: Panic is probably the right thing. There was a lot of angst.
JIANG: Cross says Delta was losing hundreds of millions of dollars a year in this new pricing world, and Cross was tasked with figuring out why.
CROSS: So I'm walking around with my yellow legal pad asking people what do you do? How do you do what you do? What would you change if you could change anything? And I came across these 50 people who were literally in the basement of the reservations building.
JIANG: This room was the heart of the chaos. These 50 people were setting the price for every seat on every Delta flight. Bob Cross asked one guy to show him how he's coming up with that price.
CROSS: He said the flight departs two weeks from today. There's only a handful of seats sold on it. I'm going to have to offer more discount seats.
JIANG: Cross knew that offering discount seats on this particular flight was a mistake. It was a flight from Atlanta to D.C. that he took all the time. He knew that it was full of lawyers and lobbyists who would book last minute and were happy to pay full fare, but instead the agent was slashing prices.
CROSS: And it was all very, very manual and very, very subjective and I would say, well, why do you do that? And he said, well, I'm just - I've been watching this flight and that's what I think.
JIANG: Wait - what were you thinking when you heard this?
CROSS: (Laughter) I'm thinking you've got to be kidding me (laughter). No wonder we're losing money.
JIANG: Cross convinces the people running Delta to invest millions of dollars - write software, crunch data - and they figure out how to change their prices based on more than some guy's gut feeling. And it works. Cross pulls Delta out of chaos and into the post price tag world. The company starts making a profit and Cross becomes this hotshot. He starts his own business and helps hotel chains and cruise lines with dynamic pricing. And today, a lot of places change their prices all the time - baseball games, some Broadway shows and anything you buy on Amazon. Bob Cross thinks the revolution will keep going.
CROSS: You know, I get bananas and look - oh, these things - they ought to be discounting these bananas 'cause they only a couple of days life left in them versus these other bananas that may have a week's life left in them.
JIANG: Cross is serious. He thinks grocery stores could be the new frontier, where in front of every item there will be a little digital screen and prices can change all the time. Jess Jiang, NPR News.
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