R ETAILING I NSIGHTS AND P RICING
O NLINE
W HAT M ATTERS M OST IN
I NTERNET R ETAILING
Although online retailers theoretically have unlimited
trading areas, they need to know where to look for
customers.
W HAT M ATTERS M OST IN
I NTERNET R ETAILING
While traditional retailers can identify and target
customers with relative ease (most customers either work
or live within a few miles of the store), Internet retailers
without physical stores find this much more difficult to do.
W HERE TO LOOK FOR
C USTOMERS ?
Many Internet
retailers have
trouble getting
noticed and
acquiring
customers.
W HERE TO LOOK FOR
C USTOMERS ?
Indeed, having
an unlimited
trading area
can be a mixed
blessing:
There are no
straightforwar
d rules about
where to look
for customers.
W HERE TO LOOK FOR
C USTOMERS ?
As a result,
some Internet
retailers are
making small
forays into
traditional
retailing, using
strategies that
include pop-up
stores, kiosks
and
partnerships
with wellknown
retailers.
W HAT R ESEARCH T ELLS U S
Individual
consumer
acceptance
depends on offline shopping
costs.
W HAT R ESEARCH T ELLS U S
Sales evolution
is structured
and predictable.
W HAT R ESEARCH T ELLS U S
Migrating from
“good” to
“great” requires
expansion to
niche locations.
W HAT R ESEARCH T ELLS U S
“Isolated”
prospects are
worth pursuing.
W HAT R ESEARCH T ELLS U S
Different
locations
require
different
customer
acquisition
strategies.
TAKE -AWAYS

Although Internet retail success is influenced by many factors
(incl. website design, social media strategy and marketing
innovations) Internet retailers must pay particular attention to
the physical environment.

A large amount of “low-hanging fruit” is available to those who
understand how sales vary according to ZIP code or
neighborhood.

The physical environment has two critical properties that make
research both doable and actionable:

(1) variation in the characteristics of the physical
environment can be measured relatively easily and cheaply,
often by using data from government sources.

(2) physical environments don’t change quickly, which
means that actionable insights tend to have a long shelf life.
P RICING S TRATEGIES
P RICING S TRATEGIES

Price setting has become an art as much as
a science.

How marketers apply pricing strategy is as
important as how much they charge.

Marketers can employ all traditional pricing
strategies to the online environment BUT…

…with a twist!
T HEORY: R EFERENCE P RICING
AND
P RICE
A NCHORS

Every product has a price range, within
which changes have little impact on
consumer behavior.
For example:

Prices for well-known brand-name consumer
health and beauty products can be raised as
much as 17 % without a change in consumer
reaction. NOT SENSITIVE/LOW ELASTICTY

Range in which price variations acceptable
for certain financial services is less than 1 %.
SENSITIVE/HIGH ELASTICTY
K EY Q UESTIONS FOR
S ETTING P RICE

Do you sell a commoditized product/service or
not?

Price vs. quality differentiation?

Do you have a strong store brand?

Service leader?

Penetrate or skim?

Bundle strategy?

Do you have a new or exclusive product?
B AYE
AND
G UPTA

“online retail industry is an unpromising one for
firms seeking competitive advantage”

What innovations in pricing strategy are required
for a firm to be successful in fluid e-retail
markets?
G ROUP FACE - OFF :

Why is pricing such a challenge in online
markets?
P RODUCT L EVEL P RICING
P RODUCT L EVEL P RICING

ease with which online consumers and
rival retailers may access comparative
information about seller
characteristics and prices

customers often search at the product
level rather than by store or category
P RODUCT L EVEL P RICING
Consumers
are more
selective in
online
markets
Frequent
price changes
feasible
G ROUP FACE - OFF :

Why is pricing such a challenge in online
markets?
G ROUP FACE - OFF :
Why is
pricing
such a
challenge
in online
markets?
G ROUP FACE - OFF :
When
should a
product/ser
vice be
free?
G ROUP FACE - OFF
What are
network
effects?
G ROUP FACE - OFF
In what
ways do
network
effects
affect
pricing
strategy?
5 P RICING I NNOVATIONS

Use price experimentation to learn about your
Customers’ Price Sensitivity/Price Elasticity

Quickly adjust price based on stage of PLC (price
sensitivities)

Quickly adjust price based on number of
competitors

Stay Unpredictable

Use Hit-and-Run Pricing to Gain a Temporary
Advantage without Triggering a Price War
Y OU
TELL ME :

What is “strategic” about frequent
price changes online?

Is it good enough to be second
lowest offer?
C ONCLUSION
ON
P RICING

Product-specific pricing

Dynamic/erratic pricing can be strategic

Shortened PLC means higher price sensitivity
requires quicker modulation

Free may have value – network effects in twosided markets!

Online pricing often the domain of lower
management levels but when doing business
online that may be a problem.
C ONCLUSION
Managerial Challenges:

Best e-businesses set up small functional emarketing groups charged with the task of
constantly monitoring opportunities to adjust
prices based on market changes and customer
behavior.

Group members should hold an entrepreneurial
view of pricing.

Group should be empowered to set short- to
medium-term pricing strategy and implement it.