Today AT&T and Verizon announced their venture, Isis, that is intended for mobile payments. They say it is a mobile payment network that will fundamentally transform how we shop, pay and save. I wonder if there is more to this than what they think is possible and what we think is the real purpose.
Sure mobile wallet will eliminate the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets and transit passes. After all we do not leave home without our smart phones. But what if these devices become a tool in the hands of marketers to achieve the holy grail of pricing – Perfect First Degree Price Discrimination?
Price discrimination is charging different customers different prices. It is based on the axiom that no two customers value the same product the same and hence have different willingness to pay for it. Marketers do not know this price distribution. So they set a single price, an approximate one that maximizes profit given the constraints. The price is below or equal to what some are willing to pay, in which case the marketer leaves consumer surplus. The price is above what the rest are willing to pay, in which case the marketer loses the sales.
There are ways to improve on this single price (if one price is good, two are better). So marketers create multiple product versions targeting different segments (16GB iPad at $499 and 32GB iPad at $599) or charge different price based on identifiable customer charecteristics (student discount and senior citizen discount). But these do not come close to perfect price discrimination of charging each customer exactly the price they are willing to pay for the same product. Only perfect price discrimination can mop up all the consumer surplus and make every sale that is profitable.
Previous attempts my some marketers, like Amazon, ran into customer backlash. Those are still experiments to tease out the customer’s true willingness to pay. There are two big problems with such methods:
- Willingness to pay is not a static number. It not only varies based on time and context but also is malleable to nudges by the marketer. (see here)
- As long as the price list is printed/published and available for all to see, one customer can see what others are being charged, there will be customer backlash.
What if a marketer has a window into our individual minds and know what exactly we are willing to pay for their product at a given moment and charge that exact price?
What if the window is more than a window, a data channel that can not only read the price but also can directly write the price into our minds?
What if the data channel is associated with a control channel that not only sends the price but also moves our willingness to pay with anchors and nudges?
With a very personal mobile device that is tied to a individual, it may very well be possible to achieve all three.
Granted it is not possible for most popular products. But what if there is no price list every published? No price tag ever shown. Instead you read the QRCode or whatever mechanism and you are shown the price. Your price, no one else’ and no one else can see your price. A price that can be determined by your profile, behavior, location, history etc, all of which are available in your smart phone.
Indeed mobile payments will change the way we shop, pay and save because it will change what we will pay.
It is the brave new world of perfect first degree price discrimination.