Fair pricing on the internet

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FAIR

PRICING

ON

THE

INTERNET

1. Introduction
Among marketing mix variables, price alone directly affects a firm’s revenue. Setting prices is a critical issue manager face and prices signal information. It conveys the value of a product or service to consumers. Throughout history, price has been a major factor in influencing buyer decisions. Thus, it is essential for firms to carefully implement their pricing strategies in order to attract sales and capture their profit objectives. Pricing practices have changed significantly in recent years. Many firms are bucking the low-price trend and have been successful in trading consumes up to more expensive products and services by combining unique product formulations with engaging marketing campaigns. Today the Internet is also partially reversing the fixed pricing trend (Amstrong et al., 2000).

Internet population has been an emphasis on Internet exchanges occurring at lower prices than in conventional outlets (Kung et al., 2002). Consumers began using the Internet to seek lower prices and entertainment

and

today

it

is

also

a

convenient

way

to

shop.

Consumers may find higher prices online due to factors such as auctions, price discrimination, and branding (Koch et al., 2002; Vulkan,

2003).

Consumers

shopping

in

an

interactive

environment

should choose a familiar brand over an unfamiliar one due to the

Final Term Project | [Type the company address]

1

known

brand's

implicit

guarantee

(Alba

et

al.,

1997).

Brands

decrease price elasticity and increase the seller’s power (Oh, 2003; Vulkan, 2003), with one study showing that online, brands charged 3.1 per cent more than non-brands.
Finally, consumers should also find greater price dispersion on the Internet than in off-line markets (Pan et al., 2003). Studies on books and the airline tickets showed prices ranges from 18 to 59 per cent. The range of prices on the Web and that customers can easily compare services, products and prices, should force some prices down (Clay et al., 2001; Vulkan, 2003) and make it increasingly difficult for some companies to earn a profit (Birch et al., 1997).

Applying the principles of economics to setting prices on the Internet can be precarious to the reputation of a firm. Amazon.com, the cyberspace retailer, encountered problems when some customers who

had

bought

discussion

DVD

boards.

movies
News

began

media

to

picked

compare
up

on

prices
the

on

online

disparity

and

consumer outcry erupted. Amazon.com finally refunded 6,896 customers an average of $3 (Kong, 2000). Setting prices based on shoppers incomes or buying habits is known as ‘‘dynamic pricing’’ (Kannan et al., 2001). Dynamic pricing is not new. Retailers frequently charge more for goods in stores in better neighborhoods, or more in areas of

less

competition.

For

example,

Wal-Marts

prices

in

remote

locations with no direct competition from a large discounter were 6% higher than that at locations where it was next to a Kmart (Foley et al., 1996). The price of a can of Coke varies with the type of outlet, from DM 2.20 in newsstand in a train station, to DM 0.64 in

Final Term Project | [Type the company address]

2

a

large

supermarket.

Airlines

are

also

known

to

change

prices

frequently according to demand and the timing of a reservation. Very few people seem to complain about such pricing practices. On the Internet, opportunities for dynamic pricing are greater for at least two reasons – customer information can be more easily collected and list

prices

can

be

Furthermore,

it

is

more

easily

easier

to

changed
check

(Dolan

et

competitor’s

al.,

2000).

prices

and

availability of products. With such information, the dynamics of demand

and

supply

can

be...
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