HED 460

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

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

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

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

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

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

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

HED 460

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

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

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

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Includes most models except fixed Most sites sell closeouts, outdated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

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

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

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

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

Taxation

3-year moratorium imposed in 1998 ended Oct. 21, 2001 - extended

Congress plans to pass an extension by year’s end

HED 460

Taxation

Why should Internet commerce be taxed?

Why should Internet commerce NOT be taxed?

HED 460

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

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

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

Taxation - future

Moratorium was extended Tax codes need to be

simplified Sales tax calculation and

remittance software needs refining and validating