Pricing on the Internet
| Published date | 01 September 2002 |
| Pages | 274-288 |
| Date | 01 September 2002 |
| DOI | https://doi.org/10.1108/10610420210442201 |
| Author | Mui Kung,Kent B. Monroe,Jennifer L. Cox |
| Subject Matter | Marketing |
Pricing on the Internet
Mui Kung
MBA Graduate, University of Illinois at Urbana-Champaign,
Champaign, Illinois, USA
Kent B. Monroe
J.M. Jones Professor of Marketing, Department of Business
Administration, University of Illinois at Urbana-Champaign,
Champaign, Illinois, USA
Jennifer L. Cox
Territory Manager, John Deere, Worldwide Commercial & Consumer
Equipment Division, Cary, North Carolina, USA
Keywords Pricing, Internet
Abstract Conventional theories suggest that the Internet will drive down prices and lead
to perfectly competitive prices. However, there is contradictory evidence indicating that
online prices are not absolutely lower than offline stores. Regardless, the Internet gives
rise to many opportunities for leveraging pricing strategies, in research and testing
capabilities, customer segmentation, dynamic pricing, product differentiation, developing
brand loyalty, including shipping and handling in the profitability analysis, offering
multiple versions, and creating or participating in electronic marketplaces. The trading
platform of eBay, Priceline's reverse auction, and price comparison Web sites are
examples of novel Internet pricing models that are helping create a new pricing
paradigm.
It has been predicted that online sales will increase from $48 billion in 1998
to $1.8 trillion by 2003. The worldwide Internet population was 445.9 million
in 2002 and was projected to grow to 709.1 million by 2004.Also, Americans
spent $2.6 billion online during the first week of December, 2001, an increase
of 91 percent from the estimated $1.4 billion spent during an average week in
November, 2001 (cyberatlas.internet.com, 2001, 2002a, b).
Accompanying this rapid growth of online sales and the Internet population
has been an emphasis on Internet exchanges occurring at lower prices than in
conventional outlets. In part, this assumed consequence of the increased use
of the Internet for e-commerce is based on the expectation that distribution
costs will be reduced and product and price information search by buyers and
consumers will become easier and perhaps costless, particularly price
information. Some of this belief has resulted from the way some of the early
dot com online businesses started. For example, in 1998, Buy.com, a
shopping bot, provided online buyers with product and pricing information
for approximately 30,000 products. The belief that price is a primary
purchasing determinant for online buyers was reinforced by the site's
objective of always offering the lowest prices. For example, the essence of
Buy.com's low-price strategy was going for someone who knows what they
want and wants it for the lowest price (Armstrong, 1998; Gurley, 1999).
Buy.com's approach epitomizes the theory that the Internet will drive down
prices to competitive levels and strengthen buyer power. Many other online
businesses adopted this theory and continued to reduce prices to meet the
assumed buyers' quest for the lowest price available. Given these
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Rapid growth of
online sales
274 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 11 NO. 5 2002, pp. 274-287, #MCB UP LIMITED, 1061-0421, DOI 10.1108/10610420210442201
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