The amazing adventures of Doug Hughes

Posts tagged ‘Price discrimination’

ProjectSpark! #1:

I just announced that I’m starting what I’m calling ProjectSpark!  As a quick summary, ProjectSpark! is my attempt to publicly describe business ideas I’ve come up with that I think have merit.  My intent is to collect feedback on the idea and, if I’m lucky, to try to build a team of partners with complementary skills to work together to bring the idea to market and to share in its guidance, ownership, and profits. Without further ado, here is my first ProjectSpark! idea:

What the heck is, you may ask? And why the heck is there a period in the middle of the word horse?  Well, the answers are forthcoming, I promise.  But first, some backstory…

I am pretty much addicted to NPR’s Planet Money podcast.  I discovered it recently and have been working my way through last year’s shows. Today I listened to episode #265: Groupon! Monty Python! Price Discrimination! which “aired” Apr 09, 2011.  In this podcast the Planet Money team explains how Groupon is just a recent way that people apply the economic principal of price discrimination.

What is price discrimination? This is essentially what happens when a seller sells the same thing for different prices to different people.  Historically, people have price discriminated through haggling.  Perhaps you are selling a trinket on the street that I think is attractive.  I might make you an offer, you counter offer, and I counter-counter offer.  This goes on for a while until we find a price that I’m willing to pay that you are willing to sell for.  The final price may be higher or lower than what any other customer may pay.

However, in today’s fast paced mass consumption society, this just isn’t practical any more.  Harris Teeter can’t bargain with every customer over the price of every product in their shopping cart.  However, this price inflexibility naturally causes some people who might otherwise buy something to not buy it.  For example, if Harris Teeter makes $1.00 profit from every box of frozen pizzas it sells, it might be able to afford to knock $0.50 off the price via a coupon.  This may encourage someone who otherwise would not pay full price to buy the product.  IE: The price is different for different people.

Groupon was 2011’s darling of price differentiation.  Or at least it was for a while.  It certainly took it’s lumps last year too.  The concept behind Groupon is essentially the same as any other coupon or discount offer.  Namely, consumers hope to get a discounted price and sellers hope to get increased awareness, increased traffic, increased sales, and, if they’re lucky, sell some add-ons to go with the deal.  For example, a glass of beer to go with a discounted meal sold to someone who hadn’t heard of the establishment before a Groupon email.

Groupon is only one of several hundred companies offering similar deal-a-day offers. LivingSocial is another well known example.  In fact, there are so many of these companies that they’ve been dubbed the Daily Deal industry and there are even conferences tending to this industry’s every need.

Now, at last, to explain what is! is a Daily Deal website turned on its head.  Rather than a seller offering a given product at some discount to a certain number of people, a group of people offer to buy a product from any seller for a specified price.

To elaborate, what if I wanted to buy, say, a Nikon D3100 14.2MP Digital SLR Camera with 18-55mm f/3.5-5.6 VR & 55-200mm f/4-5.6G IF-ED AF-S DX VR Nikkor Zoom Lenses.  Let’s also assume that the market price of approximately $700 was too rich for me.  What if I wanted to pay, say, $600 max for it?  Maybe there is a retailer out there who would entertain that offer, especially if enough people bought into it?  That’s where comes in!

As a buyer, I would be able to go to and find this product (or list it if it’s not already there).  I can then set a price I will pay for this product along with a date that my offer is good through.  For example, I could say that I’m willing to pay $600 for a Nikon D3100 and that my offer is good for, say, two weeks.  I then put a certain amount of money down on this offer as a potentially refundable deposit.  I’m thinking 10% of the offer.  The buyer has now backed up their word with cold hard cash.

Now, this buyer goes off and promotes the heck out of their offer via Facebook, Twitter, and any other way they want. The goal is to get as many potential buyers to make their own offer.  So, let’s say I post to Facebook that I’m making this offer and a few other people see this, they can join in on the offer.  These people can make their own variations on the offer as well.  For example, maybe one of my friends is only willing to pay $550, but is willing to wait a month instead of two weeks.  Perhaps another friend is willing to pay $650.  The point being that for any given product any potential buyer can set their own offer price and how long they are willing to wait to make a deal.

The other side of is for sellers.  Sellers can watch for offers on products which they sell.  For example, a camera dealer may see that 1000 people have made offers for the Nikon D310.  500 of those are offering $600 or more.  They may then decide to accept all offers over $600.

To be clear, sellers would be able to choose a minimum price on offers that they’ll accept.  So those buyers who offered too low of a price would miss out on the opportunity and those who offered too high wouldn’t necessarily get as good of a deal as they could have.  However, the seller makes a large number of sales for the optimal price for each individual customer.  Furthermore, they can avoid making sales where they would otherwise loose money.  They can also wait for a certain number of offers above their cutoff threshold before they close the deal, assuming no other sellers close the deal first. would, of course, take a percentage of these sales for this service. I’m thinking that would simply keep the 10% deposit that the buyer made and that the buyers would pay the seller directly.  This avoids potential Third Party Payment Processing problems that have plagued other businesses I’ve tried to start.

Those people whose offers were not accepted could elect to raise their offer and/or hold out for a future seller who will meet their price.  If a buyer’s offer is not accepted within the time frame they specified they would get a refund of all of their money, less a small fee.  I’m thinking 10% of the deposit.  So, if I offer $600 for the Nikon D3100, I have to pony 10%, $60, up front.  Now say my specified time period passes without my offer being accepted, I would get back $54 and would keep $6 (10% of the deposit).  Ideally would also have been collecting interest on the $60 while we held onto it for the buyer.  This provides an incentive for the buyer to make the best offer they’re willing to accept.  If they make a ridiculous offer they won’t get what they want and they’ll loose a small amount of money off of it.  Again, they’ve got skin in the game.

So, what happens if the buyer doesn’t follow through on their commitment to buy at the price they offered when a seller agrees?  This is entirely possible and may actually the best possible outcome for the seller.  Why?  Because the seller get the buyers deposit and don’t have to deliver any product!

And now to explain where the name comes from.  Firstly, to me at least, the name invokes a mental image of a noble steed working for his master.  This horse could conceivably be the mascot and animated spokesperson of this business.

Secondly, the industry’s somewhat derogatory term for people who clip coupons and make use of daily deal sites like Groupon and LivingSocial is “Coupon Whore”.  IE: Someone who will do anything for a coupon.  My thinking is, why is this a bad thing?  Consumers should wear this title with pride!  And, as luck would have it, Sweden’s top level domain name is “.se”.  I’ve recently been enamored with domain names that make use of the TLD as part of the name.  I submit to you some of my recent domain purchases:,,, and now

I think is a unique name that stands out, clearly says what it is and what it’s for, and it is memorable.

And so now, dear reader, I turn this idea over to you. Please comment below and tell me what you think of this idea.  Is it a good idea or a crappy one?  What would make it better?  Also, do you want to be a part of the team that builds and owns this idea?  Do you want to invest in this idea to get it going?  Do you know someone who might be interested that I (or any other hypothetical team members) should talk to?  Basically, I request humbly that you brain dump in the comment area below.

Thanks for reading and look forward to your feedback!

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