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elfsThe Kroger grocery chain recently held a shareholder teleconference where they discussed replacing all of the price badges on their shelves with digitial badges. The idea is that the stocker can just scan the product’s bar code and the digital badge will automagically update with the current price. Using e-paper, very low energy comm chips, and a sliver of solar strip along the top, the badges will be self-powering, self-maintaining, even self-identifying. IPV6 means there’s enough IP addresses for every badge in the store, they won’t be very busy most of the time so they won’t saturate the network, etc. etc. Technologically, the challenges of this plan are not that big. And this is not a terrible idea.
During the call, however, one of the presenters said that these badges also introduced the possibility of surge pricing, in the same way that Uber does surge pricing: when a product is scarce, they can instantly raise the price to reflect its scaricity, ensuring that only those who are willing to pay more for the product, those who truly demand the product, will pay for it.
If I was a shareholder in this deal, I’d be pulling out of Kroger the second they start rolling out their surge pricing idea.
My degree was in accounting, because in 1986 my parents thought “There’s no money in computers.” So I minored in CS. At the time I was doing so, formal “cybernetics” was a big part of the curriculum, thanks to Ronald Reagan. You see, the Soviets were still trying to cyrbernize their entire economy using computers, and for some reason the Americans became convinced that cybernetics was about computers.
It’s not. “Cybernetics” has become so corrupted as a word that a whole new discipline has been created to take its place: “Systems Thinking.” Either way, what they these terms mean has little to do with computers. Cybernetics is the study and modeling of a complex system, focusing on the flow of materials into the system over time and analyzing how those flows can be optimized to produce the best possible outcomes. The Soviets hoped to model the entire economy, every raw material and every factory and every individual need, to create a cornucopia machine. Needless to say, that was a bigger job than any computer they had could possibly have managed.
A forest is a system. The inflows are, well, water and sunlight and soil. The durable events over time are rain and sun and the seasons and the ocassional forest fire. A forest has evolved to grow at an optimal rate under its local conditions.
In the US Pacific Northwest, forestry is in a sustainable mode; the USDA (Department of Agriculture) and private forestry companies work together to harvest wood at a sustainable level. The forest recovers at a rate that is less than optimal (because humans are removing some of it), but which produces wood at a steady rate which USDA arborists regularly adjust, seeking an optimal rate. This works because the USDA owns a lot of the forest land in the Pacific Northwest.
In the US Atlantic Northeast, the story is very different, a cycle of boom and collapse. Most of the forests are privately owned. If a private forestry company does not harvest its forest to collapse, and another does, the one that does ends the cycle with more money than the one that still has a viable forest, and it ends the cycle with the power to buy out the poorer business. If they go bust, newcomers to the game with shiny MBAs leap in and hedge fund that sucker. But the forest is still there; ruined but arable. Replanting happens, and within 15 to 20 years the cycle begins again. It’s a classic prisoner’s dilemma: if anyone cheats, the system goes into overdrive and heads toward collapse again.
The Pacific Northwest arborists are always watching out for oscillations. Oscillation states are between “sustainable” and “headed for collapse”; take too much and the forest gets hurt, and recovers more slowly, and is unharvestable for a longer period. Collapse is considered different from oscillation because it’s both almost total and because recovery probably won’t happen within the timeframe of a business’s survival.
Grocery logistics is a similar system. There is still “time” in the Just-in-Time inventory and logistics systems of the 21st century. When a shortage occurs in a system, that’s an oscillation. Accounts who know their systems know that the way to figure out how to handle the shortage is to increase the amount of time inventory sits in a warehouse, maybe from one week to three, and then to start backing off until the rate of delivery from supplier to warehouse to retail outlet stabilizes. If you shorten the rate, try to push more inventory into the system in a short period of time to make up the shortage, you make the oscillations bigger as the system experiences a blockage of more product, less processors at the warehouses, and an inelastic amount of shelf space on which to sell it. You get these pulses of days when you have too much product, and days of not enough.
We will put aside the idea that this is a great system for doing Bayseian analysis, randomly changing prices until they figure out the optimal pricing scheme for a single grocery store to extract all of the “discretionary income” present in the neighborhood, leaving their customers with almost no loose change.
Surge pricing will damage the ability of acocuntants to determine that optimal rate. The market signal that something is wrong comes from a number of places, but one of them is a drop in the income from a given product. If you adjust the product price, you damage the system’s information flow. America throws away megatons of food every year; we overproduce by ridiculous amounts, and the same is true of many other necessary products: diapers, toothpaste, aspirin. A shortage in any of these is not a case of supply and demand; we are, as a civilization, oversupplied with all of them. It is a case of logistics failure.
Surge pricing is not an attempt to price something in short supply in order to meet consumer demand for a steady supply of a product. It is an attempt to paper over a logistics failure in order to meet shareholder demand for a steady supply of a profit.
Which brings us to the prisoner’s dilemma and the quarter-by-quarter punish-or-reward system of our current stock market. If Kroger tries this and shows even modest increases in profitability over two or three quaters, all of their competitors will follow suit. At which point, consumers will get deeply annoyed at unpredictable pricing with seemingly random changes day-by-day. Consumers will seek out alternative outlets and pull back on their interactions with big-chain grocery stores until the stores relent or collapse. Or Congress steps in and tells them to cut out the bullshit.
Surge pricing in a heavily oversupplied commodity market is a sign of MBA brain: logistics failures are an opportunity to reap profits, not fix the system. It will make the experience of buying groceries more anxious and miserable, so you know the psychopaths will love it.
During the call, however, one of the presenters said that these badges also introduced the possibility of surge pricing, in the same way that Uber does surge pricing: when a product is scarce, they can instantly raise the price to reflect its scaricity, ensuring that only those who are willing to pay more for the product, those who truly demand the product, will pay for it.
If I was a shareholder in this deal, I’d be pulling out of Kroger the second they start rolling out their surge pricing idea.
My degree was in accounting, because in 1986 my parents thought “There’s no money in computers.” So I minored in CS. At the time I was doing so, formal “cybernetics” was a big part of the curriculum, thanks to Ronald Reagan. You see, the Soviets were still trying to cyrbernize their entire economy using computers, and for some reason the Americans became convinced that cybernetics was about computers.
It’s not. “Cybernetics” has become so corrupted as a word that a whole new discipline has been created to take its place: “Systems Thinking.” Either way, what they these terms mean has little to do with computers. Cybernetics is the study and modeling of a complex system, focusing on the flow of materials into the system over time and analyzing how those flows can be optimized to produce the best possible outcomes. The Soviets hoped to model the entire economy, every raw material and every factory and every individual need, to create a cornucopia machine. Needless to say, that was a bigger job than any computer they had could possibly have managed.
A forest is a system. The inflows are, well, water and sunlight and soil. The durable events over time are rain and sun and the seasons and the ocassional forest fire. A forest has evolved to grow at an optimal rate under its local conditions.
In the US Pacific Northwest, forestry is in a sustainable mode; the USDA (Department of Agriculture) and private forestry companies work together to harvest wood at a sustainable level. The forest recovers at a rate that is less than optimal (because humans are removing some of it), but which produces wood at a steady rate which USDA arborists regularly adjust, seeking an optimal rate. This works because the USDA owns a lot of the forest land in the Pacific Northwest.
In the US Atlantic Northeast, the story is very different, a cycle of boom and collapse. Most of the forests are privately owned. If a private forestry company does not harvest its forest to collapse, and another does, the one that does ends the cycle with more money than the one that still has a viable forest, and it ends the cycle with the power to buy out the poorer business. If they go bust, newcomers to the game with shiny MBAs leap in and hedge fund that sucker. But the forest is still there; ruined but arable. Replanting happens, and within 15 to 20 years the cycle begins again. It’s a classic prisoner’s dilemma: if anyone cheats, the system goes into overdrive and heads toward collapse again.
The Pacific Northwest arborists are always watching out for oscillations. Oscillation states are between “sustainable” and “headed for collapse”; take too much and the forest gets hurt, and recovers more slowly, and is unharvestable for a longer period. Collapse is considered different from oscillation because it’s both almost total and because recovery probably won’t happen within the timeframe of a business’s survival.
Grocery logistics is a similar system. There is still “time” in the Just-in-Time inventory and logistics systems of the 21st century. When a shortage occurs in a system, that’s an oscillation. Accounts who know their systems know that the way to figure out how to handle the shortage is to increase the amount of time inventory sits in a warehouse, maybe from one week to three, and then to start backing off until the rate of delivery from supplier to warehouse to retail outlet stabilizes. If you shorten the rate, try to push more inventory into the system in a short period of time to make up the shortage, you make the oscillations bigger as the system experiences a blockage of more product, less processors at the warehouses, and an inelastic amount of shelf space on which to sell it. You get these pulses of days when you have too much product, and days of not enough.
We will put aside the idea that this is a great system for doing Bayseian analysis, randomly changing prices until they figure out the optimal pricing scheme for a single grocery store to extract all of the “discretionary income” present in the neighborhood, leaving their customers with almost no loose change.
Surge pricing will damage the ability of acocuntants to determine that optimal rate. The market signal that something is wrong comes from a number of places, but one of them is a drop in the income from a given product. If you adjust the product price, you damage the system’s information flow. America throws away megatons of food every year; we overproduce by ridiculous amounts, and the same is true of many other necessary products: diapers, toothpaste, aspirin. A shortage in any of these is not a case of supply and demand; we are, as a civilization, oversupplied with all of them. It is a case of logistics failure.
Surge pricing is not an attempt to price something in short supply in order to meet consumer demand for a steady supply of a product. It is an attempt to paper over a logistics failure in order to meet shareholder demand for a steady supply of a profit.
Which brings us to the prisoner’s dilemma and the quarter-by-quarter punish-or-reward system of our current stock market. If Kroger tries this and shows even modest increases in profitability over two or three quaters, all of their competitors will follow suit. At which point, consumers will get deeply annoyed at unpredictable pricing with seemingly random changes day-by-day. Consumers will seek out alternative outlets and pull back on their interactions with big-chain grocery stores until the stores relent or collapse. Or Congress steps in and tells them to cut out the bullshit.
Surge pricing in a heavily oversupplied commodity market is a sign of MBA brain: logistics failures are an opportunity to reap profits, not fix the system. It will make the experience of buying groceries more anxious and miserable, so you know the psychopaths will love it.
no subject
Date: 2024-08-16 07:25 am (UTC)Thank you.