Pricing in online retail: To remain competitive longer term, online retailers need to be rigorously orientated to the market. At the same time, price optimisations online are becoming ever more complex and faster shifting. This means that a well considered price management belongs to the fundamental business strategy of a successful online retailer. But which factors influence the price class of products in eCommerce?
High-priced products: Consumers are less price sensitive
Joan Lindey-Mullikon and Dhruv Grewal from Babson College analyzed about 500 durable and standardized products from the consumer electronics sector on bizrate.com, a US-based price comparison portal. Their study, which appeared in the Journal of the Academy of Marketing Science in 2006 (“Imperfect Information: the persistence of price dispersion on the web” – Spring 2006, p. 236-243), looked at TV sets, MP3 players, PDAs, laptop computers, and video cassette recorders.
The researchers found that, with increasing market prices, the price range of the products offered increased, measuring the price range both as difference between minimum and maximum price (MinMax price) as well as the standard deviation of the prices offered. Their explanation for this phenomenon is that consumers are less price sensitive to high-priced goods, which, in turn, stimulates merchants to show more variance in pricing. They also noticed that the more competitors were offering the product, the smaller the variance in price (MinMax price). Their explanation of this phenomenon is that consumers may be able to easier compare products online, which intensifies the competition between the merchants. Finally, Lindey-Mullikon and Grewal noticed that the higher the variance in online store quality, the larger the price dispersion in the MinMax price, confirming that consumers take reputation effects into account when shopping online.
Pricing in online retail: Build up market knowledge and utilise it profitably
The lessons learned from this research, in our opinion, are that online retailers of high-priced goods have more flexibility in their pricing strategies. Another aspect is that knowing to what extend certain products are offered in the marketplace is pivotal for a pricing strategy that allows maximizing margins. In this light, it becomes important to assess the overlap of assortments with certain competitors, but also their reputation in the marketplace as well.
Do you require further information on the topics of price optimisation and price observation on the Internet? Contact us now – we look forward to your message.