(upbeat music) >> Hey, welcome back everybody. Jeff Frick here with the CUBE's 2018, a new year. I think this is actually my first interview of the year. I'm pretty excited. I have a CUBE conversation here in the Palo Alto studios to talk about a pretty interesting topic. It's been growing over time but it's getting more and more sophisticated and a much bigger reach. And that's dynamic pricing. It's not just stick the sticker on the item like it used to be back in the day. And that's the price and it's much more complicated. Much more sophisticated. And we're excited to have Alex Shartsis. He's the CEO of Perfect Price. Alex, good to see ya. >> Thanks for having me. >> So, dynamic pricing, right. We've saw it. I guess probably the airlines are maybe the first ones to do it. Or you know, Priceline.com was kind of the first one to talk about. You know, hotels have rooms they can't get rid of. But it's moved a lot further down the path than that. I mean now the Giants I think have have flex pricing. Whether it's the Dodgers on a Friday night or it's Toronto on a Tuesday. >> Yeah, I think it's kind of just a really interesting subject, cause everybody's experienced it, right? I mean, you may not know you've experienced it. But everybody. Whether you've taken an Uber, taken a flight, stayed in a hotel. Even at this point going to an A's game or a Giants game. You've been dynamically priced. And I think what people don't realize is a lot of times they benefit from it. You're able to get that flight for a little bit less. You're able to get the Uber for a little bit less, especially than a taxi. And yeah sometimes there's surge pricing. There's last minute fares. There's things that are more expensive but it's something that every consumer has dealt with. And I think a lot of us think about pricing from a consumer standpoint cause we're all consumers. But from a business standpoint there's nothing more impactful than dynamic pricing. >> Yea, and pricing in and of itself is such a complicated issue. You go through some of the stuff on your website. You know are you coming at it from a cost point of view? Is it a cost plus kind of a model? Or is it a value model? So there's a lot of factors, right? There is no kind of perfect price. You don't want a price at the top of the market. You know, then you're giving up some volume. So what are some of the factors when you talk to people as the pricing evolution is happening from kind of what they used to do to what they're trying to do now with dynamic pricing and how you can help them? >> Yeah, so I think if you think about sort of pricing evolving from. Cost plus was kind of the beginning. Like I bought the potato from the farmer for five bucks a pound. And I'm going to sell it for 10 bucks a pound. That covers my cost of shipping it. Having a stall at the Bazaar, whatever. I think, you know today, a lot of companies still do that. Which still shocks me. But there's you know, there became this sort of in the middle of the last century. Which is kind of weird to say. Value based pricing became a thing. So it wasn't that I would sell them for 10 bucks a pound cause it was just double what I paid for them. It's people are willing to pay 10 bucks a pound and then if I try and sell them for 12 nobody buys them. Or a lot fewer people buy them and if I sell them for seven I run out. And I could have made a lot more money. So what value based pricing was is really like what is my customer willing to pay? And the Bazaar was a great place. You have a conversation. You know, Alex, how much do you really need this potato? How much do you really want this thing? Oh, you're like wearing a nice suit. I think I'm going to charge you more for this. And that obviously went away when the department store was invented. And people would walk around and see a tag on the item. And so what we do and I think what our customers are really benefiting from is this notion of really accurately figuring out what that. Not only the value the customer's getting but also factoring in all the other business related costs and fixed costs and things like that. That should or should not be part of that equation. So that the company can sometimes sell maybe at a loss on that one unit. But you know, in the case of a travel business like an airline or hotel. Loss is a very subjective thing. And you're able to make money by lowering the price for a certain segment. Or for a certain time or for a certain origin, destination. Whatever that combination is. And increase your overall profitability by doing so. Plus bring in some customers that wouldn't have been able to buy from you before. >> So, that's an interesting point of view right. Cause always what are you optimizing for? Are you optimizing for the single transaction? Or are you optimizing for the bucket of transactions? And then that can get you to very different places. So as you seen it kind of evolve what are some of the key factors that tell one of your customers you've got a great opportunity to increase profitability. Increase revenue, increase client satisfaction. Again, what are you measuring? What are you optimizing for by incorporating a dynamic pricing and how did it get started? >> Right, those are great questions. So we went into this thinking there are a lot of businesses that are stuck in cost plus pricing. And they would benefit the most from dynamic pricing. Or from using AI to price things because they're doing such a bad job of it today. And it turns out they liked doing a bad job of it for whatever reason. And we have now been successful at convincing them that maybe there's a better way to do it. But the companies that already have a lot of people and a lot invested in pricing in some fashion. Some companies call it revenue management. Those companies are the ones that really benefit and the reason is they've already seen an impact. So one of the key things for us as you. One of the first questions we ask people is why are we talking about pricing? Did you do something? Did something change in your business? Did you notice it had an impact? And everyone of our customers has been able to say yes to that. Somebody made a mistake and they changed the price and they saw a huge swing in their business. And they realize maybe we should think about it this time. >> It's usually some kind of mistake that undercuts. >> Not usually but more than once it has happened. And sometimes it's like we should do software here or not. And not let people fat finger things in. But for the more sophisticated companies. They've already seen. Some of the companies we've worked with have had pricing teams since the 70's. And so they are constantly improving and they see using AI to do dynamic pricing is the next evolution. And they don't want to get left behind. They know know it's a core of their business. And just as Enterprise Software is moving to the Cloud. Machine learning people are starting to use or have been using the graphics core for a while. You can't ignore that trend if it's a core to their business. >> So that's interesting so and we didn't really kind of talk about the impact of AI. And just really AI. Or intelligence to do a better job of optimization because as you said if you've already invested in pricing it's a complicated thing. There's so many factors and another thing about. Kind of Amazon and the Amazon pricing strategy. Or the vendors within Amazon even. And then how do you factor in convenience? How do you factor in prime? I mean there's these other things that have absolutely nothing to do with the physical price that can enable you. You know as you said, get more revenue. Get more profitability in these factors. So now we have AI. We have these crazy big machines. We have Cloud computing and big data. Huge disrupter to this marketplace and then really new opportunities to bring a lot more power to bare I would imagine. >> So I think Amazon is a great example. Cause people have really experienced dynamic pricing with Amazon. Just cause you put something in your cart the next day it changes by five cents. And Amazon's January pricing is really interesting because Bezos is being very vocal about being consumer centric. And so they're looking at what the market is doing and what things are priced elsewhere. And they're always trying to be competitive and give you value because they recognize. You said earlier. What are you trying to optimize for? Is it revenue, is is profit? There are other things you can optimize for that actually improve both of those numbers. Like how frequently you come back to that as a customer. Do I go to Amazon or do I look at Target or Walmart first. That is a huge impact in Amazon's profitability. And you may do that because of price that one time or over your experience with Amazon as a retailer. So I think what's interesting about AI is that it enables us to go. Just like the ad industry did. Went from having a lot of humans. Trying to solve a problem that really wasn't solvable by humans. So taking a lot of shortcuts. Doing what they could. It actually solves a problem. So if you think about the ad industry. If you're spending 10 million dollars on ads which I'm sure some of your listeners would be. And you're running a campaign. You probably have an agency. They probably have 10 people managing your campaign. They're looking at the 30 or 40 creatives. They have a 1,000 publishers it's running on. But pretty soon the numbers get big. I'm not going to do it right now on camera. But you multiply it out. You're talking about billions. >> And they're all multi varied right. So there's all the different. >> Right, well is the purple creative doing well on the female focus websites for 20 to 30. But not for 40 to 50 and at some point you can't keep track of all the permutation. And one of the weird twists I learned working in that industry is that. When you get down to people who actually click and convert. That's a very small number. So you might have millions or tens of millions of impressions. But you might only have a thousand or two thousand customers that ended up out of it. So you're trying to back out. Okay, that was a customer. Where did they start? And that becomes a very, very thin line to draw. And 10 years ago that was all people. You know, you had your agency. You had literally thousands of people that we traffic those campaigns. And today 78% of those ads are served by AI. Those decisions aren't made by humans anymore. And I think if you think about dynamic pricing for businesses that are very large and have really complex businesses. Like rental car companies, hotels, airlines. Transportation trucking where you're dealing with thousands of different factors. Why would you trust that to people if you don't have to? >> Yeah, as long as you have the data right. And the sophistication gets pretty interesting. You guys have a better appeal to people that already understand the value of dynamic pricing. Which you're really offering them is a new way to do it. An AI based way to do it. A Cloud based way to do it. >> The one place where we found a lot of interest that haven't had sophisticated solutions in the past. The companies that don't have a lot of direct competition. Cause a lot of, at least in travel, a huge part of the revenue manager function is what are the Jones' doing? Right, find the Hilton. What's the Marriot around the corner selling their rooms for? And for better or for worse I think there's a place for it. But it don't think it's quite the same place it's just easy for a human to go to your boss and say well boss. The Marriot around the corner is at 250 a night so we're at 260 cause I think our rooms are nicer. And yet in your data is actually the optimal price. If you look at your data. You can actually get to that price. Maybe you set some rules or you put some limits on the AI. So if the Marriot is at 300 you're not at a 1,000. Maybe you should be, right. You should maybe think about that a little bit if that's what the AI is thinking. But if you don't have that crutch. If you don't have a direct competitor around the corner from you. Then it becomes really hard. And that's why Uber started doing this in the first place. Because they knew taxi pricing was wrong. But to Travis and Ryan and the people who started Uber. The key part of it. The value proposition was always being able to get a car. And so the only way you could do that is basically by pressing people out of the market when you don't have enough cars. And then that one person who really needs to go to the hospital. Or is in DC and needs to go to a New Year's party. Whatever it is. They can pay the $200 to get to that thing they really need to cause there still is a car as opposed to not having a car. >> So you bring up a whole other kind of layer of complexity and that's the third party provider. And it just fascinates me that everyday it seems like there's a new Trivago or Kayak. Or God knows how many other kind of secondary marketplaces there are. So how does that factor in when you not only are worrying about your own pricing? Vis-a-vis your competition around the street or kind of your classic set of competitors. But now you've got this whole other layer of distribution that's kind of outside of your direct control with a whole different type of a pricing structure I would imagine. In terms of supporting. Are you seeing that expand to other places or is travel such a unique thing because of the perishability of the assets? >> So I think it will expand to other places. We think transportation in general, also trucking. I mean everything that has these sort of high operating leverage models. Where you have a lot of vehicles or distribution centers or things. The more accurately you fit your pricing to your demand the more money you'll make. The better run your business will be. The more time you save. It has a lot of implications. One of the things that's really interesting about the different channels is traditionally they have played a roll. You know you think about Nordstrom Rack or TJ Max or Priceline. Hotwire, right. You as the Hilton don't want to ruin your brand by renting your rooms for 50 bucks a night even though you know they're going to be empty. So you give them to Hotwire or you give them to Priceline. That always going to play a roll. A lot of these other places are drawing from the same inventory. So it's just yet another front door for you as a hotel or airline or a rental car company to get business from. What's interesting is because of software. Because of legal agreements and also because of software. There isn't a lot of variation in price. Even though every travel site says cheapest prices or best price guaranteed or whatever. They're all getting their pricing data from the same place. It is the same price. And so it's sort of. Unless it is run in inventory. Unless it is Hotwire where it's opaque. Where you don't know what you're getting. If you're getting a room at a Hilton. You could pretty positive that where ever you book that room Hilton's going to be the same price. >> So it's just pure marketing when they're trying to compete. Because ultimately the system kicks out what that third party available price is or is that even dynamically? >> Well, if you think about. I worked in the travel industry for a while so I don't want to share things that I shouldn't share but if you just think about. If you were the company that powered all these different sites. And had your own big consumer facing website. Would you be okay if Hilton rented its rooms for 50 or a 100 bucks less on its website? Then it lets you rent them for it. >> Probably not. >> Alex: Probably not. (laughing) >> So before we run out of time. So what are the key kind of attributes to the business that really lend itself to having an opportunity to increase profitability and revenue with dynamic pricing? >> So the biggest one is that you've seen. You've had some experience. It could be how ever trivial. And you've seen an impact. Pricing did impact your business. The second one is having a significant number of things that you sell. So if your ring and you sell doorbells and you have one product. Dynamically pricing the product is going to cause a lot more problems than it solves. But if you're a rental car company with thousands of cars. An hotel company with thousands of rooms. Anything where's there's either a lot of variation over a small number of products or a large number of products with a lot of variation. And finally to us it seems like there's this. That you're already a data focused company. Other people have written about this but you know that there's value in their data. You haven't figured out how to get it out of there yet. Or maybe you're doing some things with it. But you are committed to running your business more efficiently. I guess the marketers would call it a psycho graphic profile but that kind of attitude. You know not being content with. Hey, we've done this for four years this way and its worked great. But really wanted to leverage your data and knowing that there is enough data there. Those are the three things that really give us. >> And we don't really worry about price protection I guess. Nobody goes back once they buy their item their like. This is what I wanted. This is perfect. So and I just wondered too. What industries are people not thinking about maybe that you're starting to see get more involved in dynamic pricing. I mean obviously we know travel and those types. You've mentioned cars a number of times. Talked about kind of some of the crazy stuff that goes on Amazon. But is there other kind of ones that people might never think about? >> I mean I think the two big ones are the transportation trucking industry. There a ton of permutation there and they kind of got left out and went web 1.0. And so I think there's a lot to be done there. The other one is event ticketing. You mentioned the A's and the Giants but they're kind of the exceptions. I think there's a lot of ink that's been spilled over price gouging and scalpers and things like that. And I think that if that is you take a hard look at pricing their products more effectively. Everybody would be better off. Consumers and the promoters and the venues themselves. >> Yes, in the Boss' Letter he likes to talk a lot about the concert industry. Alright well Alex Shartsis. CEO of Perfect Price. Thanks for taking a few minutes our of your day and sharing the story. >> Thank you. >> Alrighty, he's Alex. I'm Jeff you're watching the CUBE from our Palo Alto studios. Happy New Year everybody. See you next time. (upbeat music) Welcome back everybody Jeff Frick here with the CUBE. It's 2018, a new year. I think this is actually my first interview of the year. I'm pretty excited to have a CUBE conversation here in the Palo Alto studios to talk about a pretty interesting topic. It's been growing over time but it's getting more and more Sophisticated in a much bigger region. That's dynamic pricing. It's not just stick the sticker on the item like it used to be back in the day. And that's the price and it's much more complicated. Much more sophisticated and we're excited to have Alex Shartsis. He is the CEO of Perfect Price. Alex, good to see you. >> Thanks for having me. So dynamic pricing, right. We've saw it I guess probably the airlines maybe the first ones to do it. Or Priceline.com was kind of the first one to talk about. Hotels have rooms they can't get rid of. But it's moved a lot further down the path in that. I mean now even the Giants I think have flex pricing whether its the Dodgers on a Friday night. Or it's Toronto on a Tuesday. >> Yeah, I think it's king of a really interesting subject cause everybody has experienced it, right. I mean you may not know you've experienced it but everybody whether you've taken an Uber or taken a flight. Stayed in a hotel. Even at this point gone to an A's game or Giant's game. You've been dynamically priced. And what I think that people don't realize is a lot of times they benefit from it. They're able to get that flight for a little bit less. You're able to get the Uber for a little bit less especially than a taxi. And yeah, sometimes there's surge pricing.