Flash sale: Why everyday electronics prices go up and down
DeGroote School of Business professor Sourav Ray explains why discounts on multi-component technology — like computers and cameras — can fluctuate wildly.
February 16, 2018
If you’ve ever wondered why camera or computer prices fluctuate, rest assured, it’s not random. DeGroote Associate Professor Sourav Ray examines how sale prices on these common multi-component systems are determined.
“I study how prices change, and that is always a hot topic with the public because it leads to questions such as, ‘Should these prices be regulated?’” says Ray, Research Director, Marketing Analytics, at the Marketing and Supply Chain Analytics (MiSCAN) lab.
“To answer that, we need to understand how pricing decisions are made, as well as what impact certain pricing actions have on consumer welfare.”
Ray’s research looks into how certain price and product strategies generate value, leading to greater returns for a company. With so many aspects of our lives driven by technology, it’s important for people to know how certain goods are valued, he says.
When it comes to multi-component systems, such as cameras (think lens, body, flash) or computers (keyboard, monitor, hard drive), Ray studied price reductions, as well as component prices and bundle prices.
When stores change the price of an item, the decision to discount various components versus an entire bundled system is affected by the nature of the product’s industry.
“For example, there are many more suppliers of components for computers compared to cameras, which often tend to be sold as a bundle,” Ray explains. “Given their exposure to computer component prices, consumers are more aware of the spectrum of prices for these components. So, all it takes is a small discount on computer components to convey value and generate consumer attention.
“On the other hand,” he continues, “the many possible variations of a computer bundle make the bundle prices hard to pin down. Consequently, stores would need to give larger discounts for a computer bundle to attract consumer attention. Interestingly, the situation for cameras is exactly the opposite.”
Ray’s other areas of interest include distribution channels and technology, and the government’s role in retail-pricing practices. One study involving the latter looked at Item-Pricing Laws (IPL), which in certain locations require retailers to place a price tag on every item.
While IPL measures are meant to ensure consumers are not overcharged at the point of sale, Ray’s research found that item pricing led to higher prices. That’s because IPL increases the costs of price adjustment when, for example, labels have to be printed during each sale and re-printed once the sale ends. The store must account for the additional cost of re-printing labels and implementing the price change, which it does by increasing prices.
When Ray’s IPL study was published in the Journal of Law and Economics, he was called to the Michigan Legislature because the state was looking at reforming its IPL laws.
In addition to exploring technology and retail, Ray has also branched into topics such as business ethics in the modern marketing age; how the Internet of Things affects interactions between industrial suppliers and buyers; and how data analytics can be used for more efficient transactions within a distribution channel.