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Pricing

Discover how the availability of information and the reduced transaction costs of the internet are leading to the modernization of traditional pricing models. Explore the benefits and challenges of different pricing strategies such as fixed pricing, auctions, name your own price, demand aggregation, differential pricing, dynamic pricing, and more.

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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

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  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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