Tuesday, January 29, 2008

Internet Price Comparison

`Price' is equivalent to cost to the customer in the 4Cs. Pricing decisions generate revenue, whereas the rest of the marketing mix involves costs. Pricing decisions are particularly critical for the e-Business as there is a customer perception that prices should be lower online than otherwise. Many organizations (e.g. Eurotunnel; www.Eurotunnel.com for car crossings from England to France) apply a standard discount for online purchase.

In some cases, customers can make much bigger savings buying online. For instance, to buy tickets from a travel agent in the UK for the Calgary Stampede rodeo in Canada (www.calgarystampede.com/stampede) is likely to be expensive, as the agent will probably sell these only as part of a package. Tickets can be booked directly via the Internet at a substantial saving.

Some e-Businesses sell almost solely on the basis of price. For example, emagazineshop (www.emagazineshop.com) sells a wide range of the magazinesnormally available at newsagents'. Subscription prices are normally lower than newsagents, but emagazineshop offers lower prices still. The most popular magazines are discounted by at least 20 per cent, more specialist ones 10 per cent. This is a rare example of a pure-play dotcom, founded in 1997, that has survived the dotcom crash and is growing steadily, now employing 25 people.

Internet 2010

Despite the Internet facilitating de-layering of intermediaries, it is still not automatic that costs will be less for selling online. Someone still has to carry out functions such as breaking bulk and physical delivery — and for online sales these can be even higher than for offline (many small orders delivered to individual customers rather than fewer, larger deliveries to a store), with consequent loss of advantages of economies of scale. Hence, many suppliers selling on the basis of cheap prices, even successful ones like Amazon (www.amazon.co.uk), struggle to make a profit on their e-Operations. Again, this is an area where the success of emagazineshop is an exception.

Not all prices are lower on the Internet. As already mentioned, the cost to the customer includes not just the selling price, but all the costs of buying. To buy from a (bricks) grocery supermarket incurs transport costs, and also the notional cost of the value of a customer's travel time. Tesco (www.tesco.com) is able to make a charge for home delivery, which its many e-Customers must consider represents good value.


Price comparison sites provide shopping engines that allow customers quickly and simply to compare prices across a range of Internet suppliers. For example, Easy Value (www.EasyValue.com) provides price and delivery comparisons for flights, books, CDs, videos, DVDs, games and handheld computers. Director James Rothnie claims that 'people know the products and price is driving them'. Customers can be confident that they are buying brands they can trust, and all suppliers must conform to security and service standards.

Shopsmart's approach is broader (uk.shopsmart.com). Each of its sites has been rated for not only price but also ease of use, service, returns policy, order tracking and online experience quality. Chief Executive Daniel Gestetner says, `Customers do not automatically buy from the cheapest retailer; they are looking at other things. The companies that will do best are those that invest in the back-end infrastructure to deliver on all their promises.

The Internet is an ideal medium for operating a mechanistic market. For the customers, this means quick and easy access to the 'best' deals. For sellers, this should in theory mean a level playing field, where products offered at a competitive price sell, regardless of issues such as the size of the organization; hence the suitability of the Internet for electronic trading exchange (see Chapter 4). The level playing field idea, though, has hit some snags when translated to practice, and price-based services have achieved no more than modest success to date. A number of buying services are available such as Shopsmart (uk.shopsmart.com), the leading consumer price comparison site, and ComputerPrices (www. ComputerPrices.co.uk), which finds the cheapest computer kit in the UK. Priceline (www.priceline.com) is an alternative price-based service that creates a market or reverse auction. Enter the price you want to pay for a wide range of services like flights or hire cars and the system searches for suppliers willing to sell at that price — but the customer cannot choose the (say) airline for their flight. The company does, however, guarantee that it will be one of the top airlines. Most UK customers, though, prefer to have more control over what they get, rather than buying purely on price. For most e-Businesses, pricing emains as for non-electronic strategies; that is, based on the complex interaction of all elements of the marketing mix and value. Marketing pricing is still what it was, the price that customers are willing to pay, based on considerations such as the company, brand, reputation and product. The difference that e- Commerce makes is that pricing and competitor information is faster and more transparent, meaning that market forces also tend to act faster and perhaps more efficiently. There is thus a tendency for prices to converge at lower levels.

Mini case study: TIMBERWEB

TIM BE Rweb (www.timberweb.com) is the international electronic trading exchange for sustainable timber. The site is independent — not affiliated to any participant. The 600-plus 'certified sellers' across the world are carefully screened. Buyers and sellers meet to make timber contracts, and promote their businesses in a personalized, secure environment. Members benefit from immediate access to real-time timber, lumber and wood market requirements, plus the latest news, trading methods, technical and market information. Since launch in 1997, the site has had 1.5 million hits per month from 20,000 businesses.

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