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A powwow for participative pricing?

April 28, 2012

In a  new study published in the Proceedings of the National Academy of Sciences (PNAS) entitled "Pay-what -you-want (PWYW), identity, and self-signaling in  markets" researchers found that "identity and self-image" concerns are potentially important factors in the market place  when customers arrive at pricing decisions. 

PWYW is used by many museums in New York, notably the Metropolitan Museum. The PNAS study finds that  companies can actual be profitable under a PWYW model by relying almost entirely on social preferences as consumers choose to pay the appropriate price as it is "the right thing to do" and helps maintain their "self-image". It is those "fairness considerations" that guide tipping behavior with consumers looking to avoid violating social norms.  With "inexperienced" customers, as in say Germans in the US who do not know tipping standards, knowing what others do helps in arriving at the right price.

From three field experiments in a theme park, a tour boat and a restaurant the researchers found that companies can have a sustainable and profitable model using PWYW by relying on social preferences. Among the findings, given the opportunity to name the price of a product, fewer consumers choose to buy it than when the price is fixed and low with  a no-buy decision driven largely by customers' identity and self-image concerns since they feel bad when they pay less than the “appropriate” price.

The foregoing was found to be true in a real restaurant with PWYW located in Vienna, Austria where the payments over a two year period matched what would have been the outcome were there to have been a fixed price set by the owners. Curiously, they also found that customers who paid anonymously tended to disgorge more from their wallet than when they were "signalled" (by being able to see what others were paying) as that "crowds out the value of self-signalling". The authors attribute that to the fact that when customers "like a company they may pay a price that feels right rather than simply the lowest price possible".

PWYW is not new and has been tried in a variety of industries beyond restaurants and does seem to have some caveats beyond the obvious fear of an overload of free riders which studies such as the above disprove. That includes the need for a low marginal cost (when the additional unit's production or service cost is small) and an understanding that it applies principally to individual and not group or corporate sales. It is also sub-optimal when demand is close to or greater than supply.

As a pricing model it has had particular success in the online world as in the case of the band Radiohead (also cited in the study) which in 2007 offered a download of its album for free only to find that they had collected several hundred thousands from sales despite many free downloads. Hotels to this day offer variations of it with most with an explicit quid-pro-quo as with the Hotel Grand Pacific in Victoria, Canada which requires PWYW customers to fill out a survey so that the hotel can determine what customers are looking as they roll-out a special "Urban Room"  floor. Others hostelries to have experimented with PWYW include the Popcorn hotel in Switzerland,  the Ibis in Singapore and the Hotel Abruzzi in Rome. But so far, there haven't been too many for profit enterprises signing on despite the apparent revenue enhancement opportunities. Perhaps the acronym PowWOW (from Pay What yOu Want) instead of the awkward initials PWYW will get people talking.

retro brands: a yen for the past to dollars now

April 21, 2012

A recent Wall Street Journal report looks at a not entirely new attempt at reviving old brands. Titled "Old brands get a second shot" the article starts off by suggesting that the "difficult economy is prompting many entrepreneurs to try to revive old brands from the dead—or the near-dead" while quickly noting that the "problem is that tastes have changed in the meantime". The Journal cites the case of a Pennsylvania entrepreneur who "invested $1 million of his personal savings and a government-backed small-business loan in his bid to revive the old Seafood Shanty chain."

While it is still early to pronounce the venturesome restaurateur's  outlet a success others in a variety of industries are seeking to emulate him. These range from the now moribund (for the second time) airline PanAm  to hotel group Valencia which recently embarked on a revival with the Lone Star Court, a motor court concept from the 40's.  A similar yearning for nostalgia has induced the estate of Ernest Hemingway to launch a chain of hotels and resorts in locales that are "of legendary reputation". The estate already has a line of footwear and home furnishingsHyatt hotels too has dusted off of an old brand and  renamed their extended-stay brand Summerfield Hyatt as Hyatt House.

Others include the somewhat immodestly named "Boast" shirts originally launched in 1972 by All-American squash and tennis player Bill St. John who sold the trademark rights for the logo to a duo whose first line of 8000 shirts were sold in a New York minute.

However, notable exceptions like VW's Beetle car apart, history has unfortunately not been particularly kind to brands seeking to be latter day phoenixes. PanAm remains firmly on the ground albeit with a  virtual presence urging visitors,  without any apparent irony, to embark on an "adventure, and the thrill of the journey – no matter what your mode of travel" while touting their "vintage and contemporary bags, luggage, apparel and accessories and to "explore, discover, and let the world be your runway."

The inventor of Boast was modest enough in suggesting that "having fans of the past isn't enough. There are all those youngsters out there now [who] need to be turned on to it."  Perhaps what is really needed is a revived economy that will make the need for brand revivals less of an imperative.



Using one's klout to influence customers

April 14, 2012

A California based social media analytics firm with the unwieldly name of Klout is beginning to wield considerable marketing influence thanks to a "killer team of scientists and engineers" who mine social media and enable it to measure one's "influence".

In reviewing a book by academic and social media expert Mark Schaeffer titled "Return on Influence: The Revolutionary Power of Klout, Social Scoring, and Influence Marketing" the Wall Street Journal's Marketplace column notes how "influencers" can drive a news cycle, in this case the infamous pink slime controversy.

The WSJ article notes how a "citizen influencer" who was "an otherwise unknown blogger" ended up at the top of a list pushing the "pink slime" story while "big media (in this case ABC News)" was in sixth place. Big business, never averse to influence peddling, has not failed to notice with "more than 5,000 companies—from Disney, to Audi, to Turner Broadcasting—have already tapped market-leader Klout to identify influencers." It is, as Mr. Schaeffer, observes "an entirely new marketing channel" that when done well can be enormously effective the advocacy is organic. 

Klout and others in the field are not without detractors.  Others have suggested that the social websites that rank users’ social media influence don’t really measure influence like they claim to do. Rather, a user’s social media score measures the “capacity to influence.” Even its proponent Mr. Schaeffer cautions that that the relatively new technology can get "gamed" and end up offering a significantly higher score than merited as in the case of R&B singer Justin Bieber.

The foregoing has not deterred some global business like Boticca.com, an online marketplace for talented and independent fashion designers from around the world, who have fully embraced the new marketing channel to promote an offer to a targeted group of consumers. The company's tech and investment savvy CEO noted that by "using Klout, we are aiming squarely at consumers who are influencers and interested in our designers' products."  Seems like a question of time before other industries from airlines to hospitality and beyond embrace the new channel.





Ginning up customer reviews

April 06, 2012

Fraudulently elevating the quality of one's product or service is at least as old as ancient Rome when cheap wine was often passed off as expensive high quality libation which at times had fatal consequences for the imbiber. Gaming user-generated content to snooker customers may not be as pervasive but it has garnered considerable attention in the mainstream media and even occasional regulatory scrutiny. 

This week's Middle Seat column in the Wall Street Journal, an interesting lens to view the airline industry through, turns its attention to the hotel industry in an article headlined " "The Big Flaws in Hotel Rankings". The article lays out the array of issues that affect how a hotel is ranked as well as how some operators employ dodgy methods like paid agents to submit fake (positive) reviews for themselves and even post falsely negative reviews about competitors.

Apart from deceitful operators the traveling public is faced with puzzling rankings that are divergent and even diametrically opposite in competing websites. But as the Journal notes, Tripadvisor despite being attacked not infrequently by unhappy owners and operators for its alleged fake review content, is the review industry's leader by orders of magnitude with over 60 million reviews. One reason for its popularity,apart from being the "first mover"  is that it is open for anyone to post regardless of their having stayed at the hotel. While that makes a good TA ranking a self-evident business imperative it is unclear that the noise from planted reviews is anything more than a distraction.

Nevertheless, fake reviews are beginning to attract regulatory oversight in the US as reported in a New York Times article earlier this year where an FTC official expressed concern about advertisements passing off as editorials. Likewise in the UK's Advertising Standards Authority forced Tripadvisor to toss out the word "trust" that was used to characterize its reviews since reviews are not verified. These worries have spawned algorithms that claim to spot deceitful reviews including one from Cornell University's Department of Computer Science that is said to have spotted manufactured reviews in 90% of 400 reviews that they ran their program on.

However, the fears may be overdone as can be seen from one example cited in the Cornell study where two glowing reviews for the same hotel were shown with the reader being asked to tell the fake from the real. The fake was gramatically correct with no spelling mistakes while the real had a sentence that read  "I can honestly stay (sic) that the James (hotel) is tops." Most folks fill in reviews to express their feedback not to write a precis for formal review when attention to language and style are important.  In the end the proof of the pudding is in the eating: were travlers unable to discern the real from the fake Tripadvisor's growth rate likely would have been lower if not considerably so.




Omniscient search: not quite the panacea it is held out to be

April 01, 2012

Britain's Guardian newspaper has a piece on "How bots are taking over the world"? The authors note that a shocking 70% of all trades on Wall Street are "automated" with complex algorithms driving them. They  quote technologist Kevin Slavin as saying we live "in an algo-world" and novelist Daniel Suarez who describes life as being a "bot-mediated reality" as evidenced by the fact that "automated softwares perform the analysis of medical x-rays to find abnormalities, while risk-assessment algorithms decide a person's suitability for a credit card based on their financial history."  Our lives, as they observe "are in their hands, if indeed they have anything resembling hands."

Almost as automated is how we plumb for responses to queries that affect concern any and all aspects of our lives from hotel stays to health issues. And the reflex mechanism is to "google" it with the search giant the overwhelming favorite that has stared down a legion of search interlopers from Ask Jeeves to Bing. Enter another giant: Facebook which according to a Bloomberg Businessweek article is quietly delving deeper into the $15bn search market. FB's approach is slated to be quite different to that of Google with its secret sauce of algorithms scouring the web for "relevant" content and, instead, will try and capitalize on its primacy in the social network sphere. For instance, "Facebook’s wine-loving users might be able to query the closest wineries that have been liked most often." The allure of keeping users within their site rather than go to Google or Microsoft partner, Bing likely will be too great.

That neither Google or Facebook in its soon to be search-equipped avatar offers a fully human-human interchange is brought up the authors of the Guardian article when they note that over half of those "clicking through our websites and profiles are not human". They point out that "Bots (internet robots), like any other scientific innovation, can be used for benign or malign purposes." That aspect is made acutely clear to businesses and individuals who are continually subject to cyber crime attacks not to mention false data that affects business decisions at all levels.

A recent study by Incapsula, a cloud-based "Web Application Firewall" found that over 51% of web traffic to a site is comprised of non-humans including hackers, spammers and other malevolents, 5% of whom are "scrapers" who indulge in things reverse-engineering of pricing and business models post the website content of those attacked on to other sites. Among the most commonly targeted victims of scrapers:the travel industry. Its consequences for revenue and crm seem quite self-evident.

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  • President of Apple Core Hotels, a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.

    Member of the board of Directors - Hotel Association of New York.



  • The views expressed in this blog are my own and not that of any company, association or organization.