Hype Economics: the haves and the have bots
With the most wanted items selling out in the blink of an eye, consumers are leveraging automation to get ahead. Is the use of bots creating more than a moral dilemma for retailers?
Getting their hands on the latest trainers has (arguably) never been harder for consumers. With retailers frequently selling out of stock in minutes on "drop" dates, the probability of success for the average consumer can be low. The next best option for those who miss out is the resale market, where excessive demand can often push prices up more than tenfold. One of last year's biggest resale disparities was the Trophy Room x Air Jordan 1 which launched with a retail price of $190, yet sold for a resale price of $2,792.
The sneaker market and wider streetwear scene is an example of "hype culture" at its finest (referring to a contemporary consumer cultural trend to continuously search for the latest novelty), with social media hyperbole acting as a key driver to demand. The more limited an item, the more consumers want it regardless of the price, creating demand inelasticity. Cult brand 'Supreme' religiously sees its releases selling out in seconds online, with novelty items such as pinball machines and nunchucks selling equally as quickly as apparel. This hype model, a major disruptive force in some segments of the market, has also been embraced by major brands through collaborations such as 'Ikea x Off-White' and 'H&M x Balmain'.
To increase chances of getting the latest products over others, some customers have been using software 'bots' to increase their chances of landing a purchase. Sophisticated bots can mimic the behaviour of hundreds of real customers, adding items to carts in seconds. Bots are often used to buy products in bulk for intended resale on the second-hand market, often at a significantly higher value. In December 2020, many PlayStation 5 consoles acquired by bots were reselling for over double the item’s recommended retail price. Consumers, some of whom had queued virtually for hours, were left empty-handed and retailers reported website disruption.
A bot, so what?
The use of bots creates a dilemma for retailers. Although stock is still shifted, the frustration of real customers being beaten to the purchase by bots could have negative implications for a brand's goodwill, brand loyalty and consumer perception. Combatting this can prove costly, requiring more advanced website infrastructure, more fraudulent order investigators and a social media team prepared to deal with additional complaints. Website traffic data is also likely to be skewed which could affect strategic reporting.
Where have we seen this before?
The hospitality industry is no stranger to bots and inflated resale prices. In 2018, a ban on using bots to acquire tickets for “recreational, sporting or cultural event(s) in the United Kingdom” was put in place under the Breaching of Limits on Ticket Sales Regulations 2018. Offenders face an unlimited fine. The resale of football tickets is now also prohibited without the club’s express permission, as enacted by the Criminal Justice and Public Order Act 1994.
On 2 December 2021, MPs tabled a motion to introduce legislation banning the resale of products at prices greatly above manufacturer's recommended retail price, when bought using automated bots. Those MPs argued that the online provision of items should be available to all customers and that items should not be bought in bulk by automated bots, which distorts the marketplace by creating a scarcity thus enabling the bulk purchaser to resell items at grossly inflated prices. The motion has not been progressed further at present, but it will be interesting to see whether formal legislation will be introduced to target these practices in future. Similarly, across the pond and ahead of last year's Christmas holiday period, US legislators introduced the "Stopping Grinch Bots Act"; a bill proposal which aims to target the use of bots to make it fairer for the average consumer to acquire retail products.
Who's taking action?
We're also seeing some retailers taking action. Just last month, Nike made the decision to update the Terms of Sale on its US website and retail apps to explicitly call out the use of bots by including a right for Nike to reject or cancel orders which are flagged by its system as being placed with "automated ordering software or technology". In the previous version of its terms, Nike had already prohibited the purchase of products for resale, but in its latest version the world's biggest sports retailer also extends this provision to enable it to charge restocking fees, refuse refunds or suspend the accounts of suspected resellers and of consumers exceeding purchase quantity limits set by the brand. In a similar vein, Nike also updated its terms for Nike Korea customers, by adding a clause which prohibits the purchase of products for resale.
Advice to retailers
In light of the above, and ahead of Black Friday and the Christmas shopping season, retailers stocking hype products which are likely to attract high demand on the resale market may wish to employ a combination of the following methods to warn-off bots:
- Consider implementing Terms & Conditions that permit a retailer to prohibit a transaction involving the use of bots and allowing the cancellation of orders that may have been placed by bots. Wording to this effect can also be useful in discouraging the use of bots to evade unit-per-customer limits.
- Use CAPTCHA bot identification technology. While this is not fool proof, technology such as Google's reCAPTCHA uses machine learning to try to outsmart advanced bots.
- Encourage customers to shop through an app instead of a web browser to increase resilience to bot activity. Diverting customers to an ecommerce app helps to avoid standard web traffic, which limits the ability of bots to sit on a product webpage on a browser where they could potentially monitor inventory levels in real time through the backend of the website, enabling them to buy up stock as soon as it is made available.
- Consider requiring payment by digital wallets involving biometric authentication such as Apple Pay or Android Pay, which is not easily replicable by bots.
- Require customers to answer a trivia question before purchase, which like CAPTCHA technology, will be tricky for bots to finesse.
It is important to note that bot technology is continuously evolving to circumvent the latest anti-bot measures. In the absence of legislation in this area, monitoring and adapting solutions to keep up with the latest bot trends is crucial, as bots become increasingly sophisticated and even more human-like.