ComputerLink articles by Brian Pitre

Pricing on the Internet

The influence of the Internet is changing the way many companies do business in the Information Age. One effect the Internet has had on business is the change in prices on goods and services to consumers. Pricing models are changing rapidly as the Internet evolves.

The change in the classic stepped distribution channel from manufacturer to distributor, to dealer to end-user, exemplifies the point. The Internet allows companies to sell directly to end-users because of the direct connection it provides. Companies can streamline their distribution channel by cutting out the intermediaries and pass the savings on to the consumer. The additional benefit for the manufacturer is a better price position in the marketplace.

Similar changes are occurring in other channels of distribution as a result of the Internet. As the number of Websites continue to increase, the need for finding ways of locating information grows. Although the consumer benefits by having a greater choice of vendors, the vendors have become increasingly hard to find. This can make price comparisons tedious. This situation has created a new type of Internet business model called "infomediaries."

Infomediaries will become increasingly important in the new Internet economy and in some cases, will take over the role of the classic distributor in a stepped distribution channel. Infomediaries can help the user find the most economic price, or the true market price of a particular item or service. They assume the role of the purchasing agent, and handle all the price comparison and negotiating tasks.

Some examples of pricing changes that have occurred because of the Internet include:

The Informed Consumer
www.pricewatch.com & www.computers.com 

These sites present a wide array of computer brands and models, including specifications and consumer reviews. They list Internet computer retailers with availability and list price in ascending order, for the items you choose. Both sites put the information in the hands of the consumer and act very much like a comprehensive buyer’s guide.

The Online Auction
www.onsale.com

Many auction sites offer computers, sports and fitness products, business products, antiques, and sports collectibles at closeout prices through the process of bidding. The consumer is presented with products, their descriptions, and specifications. Users can place competitive bids with a definitive date and time to end bidding. As bidding continues, users can request email notification when they are outbid so they can raise their bid.

This economic model says price is more important than brand, model, or availability, an idea that certainly takes the basic economic principal of supply and demand to a new level. The auction process allows the purchaser to obtain the product at the true market value. By selling goods this way, suppliers realize several key benefits: they minimize their efforts to find potential buyers, eliminate the costly process of creating print catalogs, find multiple prospects, and locate the best buyer. Since the items are auctioned at closeout prices, buyers win too, especially since they can avoid the frustration of trying to purchase an item that is sold out (Inventory is removed once it is depleted in Online auctions).

The Guessing Game
www.priceline.com

On this site, an individual submits the price they want to pay for an airline ticket on the date and time they specify. They receive email notification to inform them if the tickets could be located according to their specifications. The first inquiry is free, but the user is charged $35 for subsequent bids on the same date and time of travel.

In my opinion, this business model may not make it on the Net. Although guessing a price may be fun, it does not assure the consumer of the best value, and that is what most consumers want.

If you think your business can dodge the effects of these pricing models, guess again. As new pricing models are applied to a greater number of product types, it won’t be long before every business is affected. The world is connecting to the Net at a rate never seen before in history. It’s time to watch what is evolving and imagine how you can take advantage of it.