Subject: Business 2.0 Print: Faster! Better! Cheaper?
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Date: Thu, 4 Jan 2001 11:27:59 -0500

Find this article at: http://www.business2.com/content/magazine/numbers/2000/04/01/21040

Faster! Better! Cheaper?

April 01, 2000

The old economy has nearly gotten pricing down to a science. Online, however, is a different story; evolutionary pricing models for Internet goods and services are just emerging. Correct pricing is high priority for most ebusiness managers — 80 percent of online buyers ranked price a top criteria in online purchasing in a Jupiter Communications survey. They should; after all, pricing directly affects corporate profitability.

The Internet allows prices to change quickly in response to market conditions, either through dynamic pricing mechanisms (auctions, buying groups, exchanges), or through frequently updated Websites (such as those selling books or computers). The Internet also allows more effective pricing because it can automatically target customer segments, instantly tailor prices according to customer behavior, and rapidly accumulate market data on customer response.

It seems that pricing on the Internet will be faster, at least. But cheaper? Not necessarily. The Internet increases open price competition, but it also lets companies segment target customers more effectively, reaching higher demand for limited supply. Early verdicts suggest that for unique goods, such those traded on eBay, the Internet may actually drive up prices. For more standard commodities, such as most of B-to-B purchasing, the Internet will likely drive down prices.

Online pricing mechanisms will shift toward dynamic pricing, with new marketplaces dominating the B-to-B market. In many industries, existing companies will have less freedom to price their goods, because the market will determine the price. B-to-C will see a tug-of-war between plunging prices through rising competition and rising arbitrary prices set by companies testing revenue-management techniques intended to group customers into the most profitable segments. This is already occurring in the mobile and long-distance telephone markets.

In the B-to-C world, pricing is both a profitability driver and a primary means to acquire customers. Businesses must wisely craft a strategy that resolves the tension of present versus future profitability. With battles over pricing mechanisms, customer information and analysis, and pricing strategy, the likely winners will be early entrants who adapt to the new laws of the Internet.

Content copyright © 2000 Imagine Media Inc.

Find this article at: http://www.business2.com/content/magazine/numbers/2000/04/01/21040