HED 460 Pricing Feasible to test new pricing models Traditional price setting is being modernized due to information availability Internet reduces transaction costs for consumers On-line prices are usually lower

HED 460 Pricing Most prevalent model is fixed pricing Prices are set; consumers decide 79% of all e-tailers use it Amazon.com, bn.com, buy.com, etoys.com, gap.com, macys.com

HED 460 Auctions Publicly held sale Property/goods sold to highest bidder 20% of on-line sales Amazon, eBay, uBid, Yahoo!, auction-sniper, online-auctions.net Reverse auction Buyers specify; sellers compete to offer best price – iOffer.com

HED 460 Auctions - problems Inefficient commerce and pricing Artificially bidding up prices Collusion Two bidders can illegally team up to win Payment New systems – credit card is debited

HED 460 Auctions - benefits Create hype and bolster traffic Improve inventory management Excess goods/returned merchandise Generates repeat business Estimate consumer demand Evaluate price points for new products

HED 460 Name your own price Consumer’s suggest price Service presents price to sellers Sellers decide whether to accept price Similar to reverse auction Priceline.com

HED 460 Demand aggregation Group buying Service assembles buyers who want to purchase same product More buyers = lower prices 1% of online sales (b to b) Unistarllc.com, worldwideretailexchange.org

HED 460

Automatic price decline Initial retail Prices fall by seller-determined % at regular intervals Prices quit declining when all is sold Travelnetcentral.com - hotels

HED 460 Barter sites Person-to-person trading communities Trade second-hand goods Users negotiate with each other and reach agreement online Mail items to each other webswap.com

HED 460 Internet Levels playing field Consumers Lowers transaction costs Price comparisons, easily and quickly Retailers Easy to shop the competition Ability to track consumer clicks online Helps identify price thresholds and willingness to pay for different products/services

HED 460 Dynamic pricing Users and buyers influence the price of the product Prices fluctuate in real time based on supply/demand shifts Includes most models except fixed Most sites sell closeouts, outdated goods and excess merchandise

HED 460 Dynamic pricing This environment reflects true market value (values that consumers place on products) Traditional pricing is based on production costs, no consideration of consumer value

HED 460 Dynamic pricing Companies may lose gross margin dollars If consumers are willing to pay higher but find a deal But volume is higher

HED 460 Differential pricing Charges different customers different prices for same product Airlines Falls between fixed and dynamic but closer to fixed Categorize customers into groups

HED 460 Differential pricing Implemented with loyalty programs Retailers can control which customers to retain and lose Tailor different messages to different customers Price promo vs. content/new products

HED 460 Taxation 3-year moratorium imposed in 1998 ended Oct. 21, extended Congress plans to pass an extension by year’s end

HED 460 Taxation Why should Internet commerce be taxed? Why should Internet commerce NOT be taxed?

HED 460 Taxation - for Required to collect from customers who live in states of e-tailer presence State/local govts argue loss of sales tax revenue harms Bricks and mortar retail Local schools Local governments

HED 460 Taxation - against Retailers argue state/local tax codes are complex Lost tax revenue is a drop in the bucket since e-commerce is a small percentage of total retail sales

HED 460 Taxation - Michigan State says it is no different than catalog Puts Internet and stores on level playing field Cost to collect is $2 million Additional revenue is $240 million

HED 460 Taxation - future Moratorium was extended Tax codes need to be simplified Sales tax calculation and remittance software needs refining and validating