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Pricing

Pricing. Feasible to test new pricing models Traditional price setting is being modernized due to information availability Internet reduces transaction costs for consumers On-line prices are usually lower. Pricing. Most prevalent model is fixed pricing Prices are set; consumers decide

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Pricing

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  1. Pricing • Feasible to test new pricing models • Traditional price setting is being modernized due to information availability • Internet reduces transaction costs for consumers • On-line prices are usually lower HED 460

  2. Pricing • Most prevalent model is fixed pricing • Prices are set; consumers decide • 79% of all e-tailers use it • Amazon.com, bn.com, buy.com, etoys.com, gap.com, macys.com HED 460

  3. Auctions • Publicly held sale • Property/goods sold to highest bidder • 20% of on-line sales • Amazon, eBay, uBid, Yahoo!, auction-sniper, online-auctions.net • Reverse auction • Buyers specify; sellers compete to offer best price – iOffer.com HED 460

  4. Auctions - problems • Inefficient commerce and pricing • Artificially bidding up prices • Collusion • Two bidders can illegally team up to win • Payment • New systems – credit card is debited HED 460

  5. Auctions - benefits • Create hype and bolster traffic • Improve inventory management • Excess goods/returned merchandise • Generates repeat business • Estimate consumer demand • Evaluate price points for new products HED 460

  6. Name your own price • Consumer’s suggest price • Service presents price to sellers • Sellers decide whether to accept price • Similar to reverse auction • Priceline.com HED 460

  7. Demand aggregation • Group buying • Service assembles buyers who want to purchase same product • More buyers = lower prices • 1% of online sales (b to b) • Unistarllc.com, worldwideretailexchange.org HED 460

  8. HED 460

  9. Automatic price decline • Initial retail • Prices fall by seller-determined % at regular intervals • Prices quit declining when all is sold • Travelnetcentral.com - hotels HED 460

  10. Barter sites • Person-to-person trading communities • Trade second-hand goods • Users negotiate with each other and reach agreement online • Mail items to each other • webswap.com HED 460

  11. Internet Levels playing field • Consumers • Lowers transaction costs • Price comparisons, easily and quickly • Retailers • Easy to shop the competition • Ability to track consumer clicks online • Helps identify price thresholds and willingness to pay for different products/services HED 460

  12. Dynamic pricing • Users and buyers influence the price of the product • Prices fluctuate in real time based on supply/demand shifts • Includes most models except fixed • Most sites sell closeouts, outdated goods and excess merchandise HED 460

  13. Dynamic pricing • This environment reflects true market value (values that consumers place on products) • Traditional pricing is based on production costs, no consideration of consumer value HED 460

  14. Dynamic pricing • Companies may lose gross margin dollars • If consumers are willing to pay higher but find a deal • But volume is higher HED 460

  15. Differential pricing • Charges different customers different prices for same product • Airlines • Falls between fixed and dynamic but closer to fixed • Categorize customers into groups HED 460

  16. Differential pricing • Implemented with loyalty programs • Retailers can control which customers to retain and lose • Tailor different messages to different customers • Price promo vs. content/new products HED 460

  17. Taxation • 3-year moratorium imposed in 1998 ended Oct. 21, 2001 - extended • Congress plans to pass an extension by year’s end HED 460

  18. Taxation • Why should Internet commerce be taxed? • Why should Internet commerce NOT be taxed? HED 460

  19. Taxation - for • Required to collect from customers who live in states of e-tailer presence • State/local govts argue loss of sales tax revenue harms • Bricks and mortar retail • Local schools • Local governments HED 460

  20. Taxation - against • Retailers argue state/local tax codes are complex • Lost tax revenue is a drop in the bucket since e-commerce is a small percentage of total retail sales HED 460

  21. Taxation - Michigan • State says it is no different than catalog • Puts Internet and stores on level playing field • Cost to collect is $2 million • Additional revenue is $240 million HED 460

  22. Taxation - future • Moratorium was extended • Tax codes need to be simplified • Sales tax calculation and remittance software needs refining and validating HED 460

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