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Ever wondered about the origins of some of today’s commonly used pricing practices? You might be surprised to learn that some of them are older than you think. That’s all the more reason for not reinventing the wheel when it comes to pricing.
Auctions, for example, date back to 500BC. Joseph, with his coat of many colours, was sold into slavery by his brothers via an auction. Auctions have stood the test of time ever since, and are used to sell thousands of fresh flowers in Holland everyday, as well as thousands of keywords on Google and other online adverting platforms.
In 1666, boatmen charged residents fleeing the Great Fire of London fares two to three times above normal to cross the Thames and reach the safety of the south bank. This is one of the earliest examples of demand-based pricing that I can find, and the practice continues to this day. On 8 Jan 2012, the New York Times ran a story on passengers paying 6 to 7 times normal rates for taxis provided by a company called Uber.com on New Years Eve.
Further, dynamic pricing was used to price grandstand seats to watch hangings at Tyburn (London). Prices started to rise and fall according to the level of interest in the execution. Again, this provides some historical context to the pricing of concert tickets by artists like The Eagles and the Rolling Stones.
Dynamic pricing is now moving wholesale into sporting events. While rugby league’s State of Origin II this year was billed as ‘dynamically priced’, it fell short of what most American Major League Baseball did this year: prices that vary according to the day of week, whether it’s a home or away game, who the opposition is, and even players selected in the team.
Ever wondered where advance purchase requirements came from? The earliest example I’ve been able to find is from 1729, when the British Museum in London started selling admission tickets in advance. Many industries, including most if not all of the travel industry (including airlines, car rentals, hotels and cruise lines) do this today!
As we all know, customers have been complaining about prices for years (…probably since 500BC). Today, customers flock to social media to vent their frustration, but a famous sketching from 1762 shows patrons storming the stage of a Covent Garden Theatre when the practice of selling tickets to the last two acts of a play at half price was abolished.
Of course, this event pales into insignificance when compared to bigger ‘riots’ that can be attributed to pricing. The origins of the French Revolution, for example, can be traced back to a rise in the price of bread.
Between 1869 and 1872, the Bon Marche department store in Paris made two groundbreaking innovations. Firstly, it started to display its wares for customers to inspect, and secondly, it introduced price tags, so no longer was the price determined by the customer’s ability to haggle.
In 1872, price tags crossed the Atlantic. They were popularised there by Aaron Montgomery Ward (widely recognised as the inventor of mail order) and Frank Woolworth (who operated a chain of discount stores with all merchandise priced at five or 10 cents).
Ward’s mail order catalogues still had one problem: customers had to wait for their purchases to arrive, usually by train. The following decade, in 1888, Thomas Adams put the chewing gum he had invented into ‘Tutti Fruitti’ gum vending machines, which started to appear in New York railway stations.
Even today, it is impossible to haggle over price with a vending machine… although attempts have been made by vending machines to haggle over price with customers. In 1999, the chairman of Coca-Cola, Douglas Ivester, told a Brazilian magazine his company was working on a temperature sensitive vending machine that would increase the price of Coke on a hot day. The idea didn’t get off the ground at the time, but there are temperature sensitive vending machines on the street of Japan today.
Between 1894 and 1910, a Hungarian immigrant to New York by the name of Joseph Leblang identified an opportunity to sell discounted tickets to Broadway shows from his cigar store on 6th Avenue and 30th street.
Receiving free tickets from Broadway agents in return for putting posters up in his store, Leblang then sent his brother around to other stores to buy as cheaply as possible the free tickets offered to other store owners. Reselling the tickets at about half price, he went to his grave a millionaire.
The Model T Ford sold for around $850 to $950 when it came out in 1909. But by 1924, the vehicles prices had fallen to $265. The same thing happens today: the world moves a lot faster these days, and product life cycles are getting shorter and shorter. Today’s premium-priced product can be tomorrow’s dirt-cheap commodity, thanks to price erosion.