Are Businesses Better at Exploiting Customers?
Los Angeles Olympics in 2028 sure seem nimbler at pricing than Los Angeles 1984.
One of the more subtle changes of my lifetime is that businesses now are much more able to maximize their profits than in the 20th Century. Back in the day, in contrast, they weren’t very nimble at executing according to the dictates of the most sophisticated economic theories, so they left a lot of money on the table.
For example, when I was working in Chicago in the summer of 1983, I made plans to attend the 1984 Summer Olympics in my hometown of Los Angeles. Exactly one year to the day ahead of time, on August 3, 1983 I called up United Airlines and bought my round-trip ticket from Chicago to L.A. for August 3-August 12, 1984.
The nice lady at United said that their software wouldn’t go more than 11 months into the future. (I’ve been told that this was so their computers only had to store the month and date, but not the year, in RAM — two digits of storage was not cheap in the 1960s, my friend!)
But, she said, she would write down my reservation longhand and they’d enter it into their system in a month. She charged me the usual price back then, maybe $300.
About five weeks later my ticket for 1984 arrived in the mail.
But a few weeks after that, a United representative called me and announced:
United: “We just realized the Olympics are in Los Angeles in 1984, so we’ve gotta double your fare!”
Me: “Huh?”
United: “Yeah, you didn’t tell us that this flight was during the Olympics.”
Me: “The 1984 Summer Olympics have been scheduled to be in Los Angeles since 1978. It wasn’t a secret.”
United: “But … that’s not fair. So we’re raising your ticket price to $600.”
Me: “Nope. We have a deal. Sorry.”
We went around like this a little while longer, then the person from United got depressed and gave up.
So, I flew for $300 as we had agreed.
I suspect business systems are more nimble at exploiting customers these days. That poor United underling in 1983 seemed kind of embarrassed by his or her (I don't recall) assignment, but nowadays MBAs and JDs would have game-planned this kind of thing ahead of time and it would all be in computer code.
When I started at an ultra-sophisticated marketing research start-up in 1982, it was pretty funny what our highly sophisticated consumer packaged goods clients wouldn’t bother testing because their not so sophisticated customers, the supermarket chains, would only do things that their dads had been doing in 1952.
I’d point out that, say, Professor Gottinhimmel’s doctorate was on how you could maximize profits by temporarily boosting prices on Saturday (or whatever, I don’t recall precisely). But my contacts at G&P would explain that the P&A chain only changed prices on Wednesday, so we should focus instead on proving how doubling G&P’s television ad budget for their ancient product would increase sales.
Unfortunately, doubling TV advertising for famous old brands almost never worked (although I do vaguely recall that increasing the number of Bill Cosby General Foods Jello ads in 1983 did the move the needle, because shoppers loved Bill Cosby in 1983).
But around 1986, G&P’s top management suddenly realized that doubling their ad budget had almost never worked in our tests, so the CPG marketing business was plunged into this weird recession while the rest of the American economy was prospering.
Back in 1984 or so, I had suggested to a G&P product manager that they ought to test cutting their advertising budget, since none of our tests showed that how much they spent on their famous old brands like Minchar toilet paper seemed to affect sales. They could potentially save hundreds of millions of dollars!
But he replied that …
Paywall here.
