E-commerce is taking off in a big way, and for companies selling consumer products via the Net, there are a number of special pricing considerations.
The whole issue of e-commerce raises some interesting pricing considerations for companies that are on-line or about to go there. How much pricing information should a company make available on-line? If companies make all pricing information available on-line, are they also making it easier for customers to shop for a better price (and for competitors to match their prices)? Should e-commerce prices be the same as prices for non-electronic orders? If a company chooses to discount for orders sold and placed via the Net, what discount level is appropriate and how will these discounts impact on the price of products sold through traditional channels? How can a company manage price discount structures using e-commerce? How does a company distinguish between prices for different customer segments?
There are no easy answers to any of these questions. However, like most pricing issues, these can best be resolved by placing them in the context of the company’s overall marketing strategy and by examining what the company hopes to achieve through electronic commerce. In addition, and perhaps most importantly, the company embarking on e-commerce will want to consider the impact that this sales channel will have on the customer’s perceptions of value.
To date, most companies have taken the approach that electronic commerce should provide customers with a pricing discount. After all, customers typically wait several days for delivery of merchandise after placing an order. The trade-off is thus between price and service (delivery, in this case). This approach is certainly the one taken by companies such as E-trade, Amazon.com, Dell, and Gateways.
Many banks, on the other hand, have taken a different approach and charge their customers a premium for the ability to access financial information on-line and perform transactions from home. The notion that e-commerce has a higher value because of the service element is critical to their strategy, and entirely consistent with the value proposition. The rationale is that customers spend less time in line-ups for ATM’s or in the branch, avoid bill payment fees, and save on postage costs.
“…if there are no concrete benefits, electronic commerce may only serve to confuse a pricing strategy without bringing increased profitability”.
Price segmentation and discount programs on the Internet present an additional challenge to marketers. Balancing pricing transparency with segmented pricing usually involves some tradeoffs that need to be taken into account. The problem of how to handle segmented pricing electronically so that price differences are not readily transparent to customers can be solved by a variety of technical solutions.
These include giving customers passwords to access specific discount programs or using customer specific CDs to adjust list prices on-line. The strategic pricing issues, however, are usually more subtle and may involve changes to list price structures and discount programs that could affect your pricing strategy. This is particularly true in situations where the customer base is too large and varied to allow for customer-specific discount structures, or where it is impossible to segment customers before they make a buying decision.
But before a company begins to consider these issues, it is important to first ask whether electronic commerce can offer benefits to the company and its customers. Remember that not all customers will value the opportunity to conduct transactions online and this, in itself, presents some challenges to pricing. Furthermore, if there are no concrete benefits, electronic commerce may only serve to confuse a pricing strategy without bringing increased profitability.
In an ideal world, e-commerce pricing should offer benefits to both customers and suppliers. Suppliers should benefit from lower order entry costs, fewer sales calls, and better forecasting. Customers should benefit from faster order processing and – ideally – faster delivery, lower inventory levels, and fewer shipping errors. In short, there should be value for both parties that will impact on pricing, with the benefits shared by both.