SXSW learnings: Dynamic Pricing

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Why we have price tags

The concept of a price tag on every product is actually a relatively recent idea. Up until about a hundred years ago, the expected method of purchasing something from a store was to select what you wanted and then barter for the price you wanted to pay.

The problem with this process was that customers felt  disadvantaged to the shop keeper, who was a much more experienced trader, and so the price tag was born. This ensured that every customer got the same deal.

And today?

Skip forward to today and we are starting to see a change in how products and services are priced. In several industries, such a travel, companies are changing prices frequently based on environmental variables like supply and demand. Take hotels at SXSW as an example, hotel rooms cost much more around the time of the festival due to the huge increase in demand.

This trend of dynamic pricing hasn’t spread to far into the retail sector yet, but with the increase in mobile usage retailers are starting to look for ways to tap into the vast amount of personal data you are carrying around with you.

We already have some services trying to work in this space. Tools like foursquare and Groupon are allowing retailers to offer savings to certain groups of people, but that’s just a scratching the surface of dynamic pricing,

With the increased adoption of NFC in the next 12 months we could see increasing numbers of retailers offering personalised pricing, that is just for you, based on anything from the amount of friends you have on Facebook, to the last time you tweeted.

There are some risks associated with this model. A few years ago Amazon experimented with a system which offered users a unique price based on location, time on the site and even what browser they were using. There was huge backlash because Amazon didn’t inform customers about the system and so users felt that they were being discriminated against.

The key to a successful dynamic pricing model is to be transparent about why you are offering each price otherwise your customers could feel alienated and cheated.

Photo credit: NeilT on Flickr

3 ways retail banks could get more benefit from social media

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Three financial services social media ideasFollowing last week’s post exploring social media fears and opportunities for financial services brands, this blog post suggests three  ways that retail banks could make real, innovative use of social media to differentiate their products.

1. Social banking

Create a current or savings account with interest rates individually tailored based on a customers’ ability to recruit more members to the bank. New accounts could open with an average interest rate which increased by a small fraction each time a customer brought on a new member to join.

In the old days of member-get-member direct marketing, it was common for companies to offer discounts, gifts or value added services to customers who did the leg work in finding more customers. This model has now evolved into group buying from sites like Groupon, but there is evidence to suggest that “member get member” banking could work from Key Trade (under the control of Group Credit Agricole).

While Key Trade used a cash signup incentive, an interest based one would be a more meaningful commitment to a customer relationship and stronger motivator for recruiting new customers, particularly if interest rates could be competitive with current market offerings.

2. Social Micro Saving

Create a savings account which encourages you to micro-save via your social platforms. This could also be used to encourage micro-donation to charities. This could work quite effectively as a Facebook app which occasionally puts something into a subscriber’s news feed, reminding them to tuck £10 away in a savings account and make a small donation to charity.

Charitable donations website Just Giving noted the rise of social giving late last year and with the rise of applications like Snoball and SocialVibe, innovation is already beginning to harness the power of social donation behaviour to drive donations for charitable causes. If charitable donations can be contagious amongst social networks, it seems likely that social saving could be similarly rewarding and therefore contagious. Examples might include teams that are saving personal funds & raising charitable funds for expeditions, or groups saving towards a common goal such as holiday makers saving for a big trip.

3. Social Budget planning

Social gaming has proved itself remarkably addictive, but plenty of applications can the human desire to compete to good use. Mobile or social apps that let people compete over their personal budgeting targets could drive more careful budget planning & financial prudence.

As soon as NFC payment becomes a reality, mobile devices will be enabled to track spending both in terms of amounts and locations. If a couple, or group of friends decided to collectively budget towards a savings target, they could opt in to share how well they were performing against self-imposed goals. Personal financial data would remain private, but benchmarking against targets for lunch-time spending, for example, could earn gamers reward points & bonuses, just in the same way that FourSquare currently awards players with badges & Mayorships for check in achievements.

My purpose in exploring these ideas is to demonstrate the varied applications for integrating social media & social network behaviours with personal finance. With the growing popularity of The Co-Operative bank which offers customers a shared gains model and niche banks like Triodos offering consumer banking customers ethical and sustainable savings options, it’s not hard to imagine innovative, social financial products emerging as the financial services industry re-invents its public image.