I do think the big data promise is overblown. Looking at my local grocery store, the american one is always trying to collect my phone number and tie it to my purchases. That will give them an edge more than what they have to pay their multi-million dollar IT budget to satisfy this? The store is barely filled during peak times.
Meanwhile, the asian grocery store down the road has old credit card terminals and no phone tracking or other gimmicky crap. They sell cheap vegetables and are PACKED and are huge and they rent out their space to other vendors, Walmart style. No place to move in peak shopping time. This is because of their greater selection and vastly lower prices.
There are other factors, but I don't think keeping track of what everyone buys will give them some insight to raising prices on a few items.
The IT edge was realized by companies like Walmart and Costco in their supply side and inventory, I don't think big data will give them a similar edge which is what they are aiming for. Like Target gave targeted advertisement to pregnant women, will that edge really vastly offset their number crunching IT costs?
If they can increase their revenue by 10%, and it cost them 5% of their revenue to do, then it's worth it.
You're missing what they'd do with that data.
Keeping track of what you buy means they can email/text/whatever to say 'hey, this %reallyinterstingthing% is on offer'. And really interesting thing really is interesting to you.
It's like an article I read a while back about how supermarkets can predict if you're pregnant by the things you're buying before you've even told anyone.
That's valuable to them, although extremely creepy. They can start bombarding you with vitamin supplement adverts or books or whatever and you're more likely to buy as you actually want those things.
I get those texts, emails, and mailings. They all go right in the trash. Why should you discount something someone is predisposed to buy anyway? You should raise the price instead.
The point of discounts, coupons, etc. isn't to get you to buy, it's to build very comprehensive data on the demand elasticity curves of each good they sell.
If you've taken an introductory microeconomics course, you'll remember that almost all the models of a "rational" firm involve maximizing profit by picking a price point where people still buy yet will pay a maximum price per unit. How firms determine that demand curve is left as an exercise - it's assumed that firms who get it right will survive while firms that don't will go out of business, leaving only firms who get it right. This is cold comfort if you're a business owner and want your firm to get it right.
So what do the big retailers do? They A/B test. They divide customers into two groups (say, those who have a Safeway card and those who don't) and offer a different price to each. Then they measure how much of each good people will buy at each price, and presumably do some statistical corrections for demographics, the "sale" effect (where people buy whatever's on sale regardless of price), folks who won't use coupons no matter how cheap, etc. They end the sale, and then pick a different price next month. Over time, they build up extensive data about just how high they can raise their prices before people stop buying entirely.
So when you ignore the discount, that's Mission Fucking Accomplished for the store. It's telling them that the discount doesn't matter, and you'll buy regardless, and so they should try raising the price instead. They don't care about the sale, they care about the data, so that they can make more money from all their other customers.
I've never worked at a brick & mortar retailer, so I can't know for sure. I know for sure that online retailers do this - a few have been caught showing different prices to different customers, or to the same customer in different browsers. I'd be very surprised if Walmart/Target/Safeway/CVS/etc. don't - what else is the point of the "rewards card" if not to gather detailed data? Why do they seemingly have a different "everyday low price" every month?
While I think you're right re:data (got my up vote for that!), Safeway club card is a bad example- 1) it's basket-wide and 2) almost everyone uses it. SW CC is good old fashioned price discrimination, which is designed to capture producer surplus from customers whose willingness to pay is greater than the market price. Many other examples incl. airline tickets: the extra charge for first or for a flexible ticket isn't because it costs that much to keep your spot flexible in their model, it's simply to price discriminate and be able to charge as high as the market will pay. Nothing wrong with it, but the key difference is that the sale itself does matter.
(a) So that you do, in fact, buy them—turning that "hmmm maybe I should get this thing" into "yes, I will get this thing, especially since I can save money on it!"
(b) So that you buy them from me instead of from someone else who didn't give you a coupon. (And while you're here, you're probably going to decide to pick up some other stuff on your grocery list...)
If you raise the price too much I'm going to find myself a different store.
Meanwhile, the asian grocery store down the road has old credit card terminals and no phone tracking or other gimmicky crap. They sell cheap vegetables and are PACKED and are huge and they rent out their space to other vendors, Walmart style. No place to move in peak shopping time. This is because of their greater selection and vastly lower prices.
There are other factors, but I don't think keeping track of what everyone buys will give them some insight to raising prices on a few items.
The IT edge was realized by companies like Walmart and Costco in their supply side and inventory, I don't think big data will give them a similar edge which is what they are aiming for. Like Target gave targeted advertisement to pregnant women, will that edge really vastly offset their number crunching IT costs?