On-Line Pricing: Concept, Methods and Current Practices

By Verma, D. P. S.; Varma, Gaytri | Journal of Services Research, April 1, 2003 | Go to article overview

On-Line Pricing: Concept, Methods and Current Practices


Verma, D. P. S., Varma, Gaytri, Journal of Services Research


Price is the consideration, generally expressed in monetary terms, paid by one party to another for a product or service while making an exchange. It is the value of an offer. The benefits that a firm provides to its customers are transformed into profits through the price it receives. It is related to the sales volume and the quality of the product offered over a period of time. It is an important tool in the kit of marketers to influence the behaviour and satisfaction of the customers. As compared to the other elements of the marketing-mix - product, promotion, and place - price is probably the most flexible element; in the sense that it can be changed quickly. It is difficult to alter the product features or promotional activities or to negate channel commitments in the short run. But pricing and price competitions are often the most pressing problems faced by marketing managers (Kotler, 2000). Besides essentially relating to the other elem ents of the marketing m ix, pricing is a strong tool of the marketing-m ix used to reinforce the selection of market segments and targets. Alongwith the other P's, it helps in appropriately positioning the product in the mind of the target segment vis-à-vis competitors.

The normal pricing objective for a firm is to set prices to maximise profits. Choosing the price that best balances marginal cost and marginal revenue solves this problem. Of course, the assumptions of knowledge of the demand curve and the cost curve are implicit here. There are well-established theories and practices to help marketers choose the right price. But the commercial usage of the Internet and the World Wide Web is making things really difficult for marketers as far as pricing is concerned. The Internet is changing the given cost structure as well as the total revenue mix of certain industries and affecting them to a great extent in other industries.

The Internet is a global computer network made up by linking millions of smaller computer networks all over the world. It uses standard protocols to exchange information (Gates, 1995). The World Wide Web (also referred to as the 'Web') is a collection of global information resources, connected through hyperlinks. The information can be provided not only in text form but also in the form of animation, static images, audio and video. However, as suggested by Janal (1995), the Internet is the least expensive and the most cost-effective marketing tool. People from around the world can read the messages of marketers. Now marketers can create business relationship with their suppliers, distributors and custom ers for m erely a fraction of the cost of any other marketing method. The changes in the cost structure and increase in the perceived value of an offer, by customers, because of better relationships, are affecting pricing strategies of marketers.

This paper has been divided into four sections. In the first section, the concept of on-line pricing has been introduced. Price sensitivity in the context of the Internet has been explained in the second section. A brief discussion on popular on-line pricing methods is given in section third. The fourth section presents the findings relating to on-line price practices adopted by marketers in India.

SECTION I

THE CONCEPT OF ON-LINE PRICING

The Internet is a new powerful marketing medium in modern times. It provides lots of opportunities to marketers. But at the same time, it also poses certain challenges. Till the Internet is used for communication and promotional activities, pricing does not seem to be a major problem. But as soon as marketers start thinking of selling through the Internet, they have to determine the answers to a number of questions. The most critical of these is whether they should retain the same price as in the physical world or to increase it or to decrease it, which may to a certain extent, depends on the change in the offering also. Online price have to be determined, even in the cases of 'pure play' firms (firms selling through the internet). …

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