Implications for Theory and Practice

From a strategic perspective, the implications for theory and practice are significant. To help shed some light on these implications, Table 1 evaluates the advantages and disadvantages of various online pricing techniques by looking at the benefits and threats to vendors and consumers.

Table 1: Pros and Cons of Selected Online Pricing Tactics.

Benefits to vendor

Threats to vendor

Benefits to consumers

Threats to consumer benefits

Fixed price

Easy to manage

May be irrelevant for demand

Not confusing/take it or leave it

May not get a bargain price

Set price through auction

Liquidate excess inventory Let market decide price for special goods (e.g., antiques)

May not be very efficient for quick or large sales Uncertainty of number of bidders and their reservation prices

Exciting May get a bargain

May be time consuming May not worth it for inexpensive items

Personalized pricing

Match price for what each individual customer is willing to pay and unique situation

Has to accurately measure each consumer's utility function for the product Consumers may resent being treated differently from others

Only pay what the customer think is worthwhile Price is relevant for personal situation

Some may not get good prices May feel get "ripped off" at times

Yield Management pricing

Match price and available capacity Maximize profits

Large investments in technology and information systems Consumers may resent being treated differently from others

Price sensitive consumers may enjoy similar service at lower prices

Some may feel get "ripped off" at times

Name your price

Flexibility in price setting

Has to carefully calculate how many "offered prices" the company should accept

May get good deals

Many restrictions on receiving the offer

Consumer group buying

Can sell to a large group of buyers at one time

Uncertainty about the formation of consumer groups

Get good deals through group buying power

Has to wait until a group of buyers who share the same buying interest are ready

Research shows that there are three ways in which marketers can profit from the flexibility of e-pricing (Marn et al., 2000; Marn & Rosiello, 1992):

  • Precision in price levels and price communication. The payoff is enormous for companies that can identify the range of possible prices within which customers are indifferent to increases or decreases.

  • Time adaptiveness in response to market changes. Online pricing is adaptable, and allows companies to make swift adjustments in response to market conditions.

  • Segmentation of prices. Online companies can use multiple sources of customer information to determine a customer's appropriate segment and set prices accordingly.

In order to execute an online pricing strategy that takes advantage of these opportunities, marketers must (Marn et al., 2000):

  • Identify degrees of freedom consistent with strategy and brand. Choose e-pricing approaches that do not conflict with key strategic objectives, core business principles, or brand promise. For example, lowering prices online for a product that is being positioned as a higher benefit, higher priced product might increase the near-term volume of sales, but it could hurt the brand image in the long-term. On the other hand, an airline might offer lower fares online since customers understand that the airlines can pass on the savings from the travel agent commissions to the customers.

  • Build appropriate technological capabilities. Pursuing e-pricing opportunities does not necessarily require huge systems investments. The key is to use limited tests of alternative price levels, structures and price communication to see what level of granularity along the three dimensions is worth pursuing.

  • Build an experimenting and nimble pricing organization. Online realities require constant tests to find opportunities and also require an empowered and responsive pricing organization.

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Figure 2: Dimensions for Internet Price Improvement.

Intelligent Enterprises of the 21st Century
Intelligent Enterprises of the 21st Century
ISBN: 1591401607
EAN: 2147483647
Year: 2003
Pages: 195 © 2008-2017.
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