Everyone knows that companies have rock-bottom prices they’re willing to offer in emergencies. Think goods and services whose value is about to expire: hotel dates, plane tickets, last season’s fashions, packaged food.
But until recently, not many people knew what those prices were. Keeping them under wraps is a key part of how companies maintain pricing power.
Well, the secret is out. Now, thanks to the Internet, consumers are able to figure out those prices. And that is creating huge headaches for the companies.
Online shoppers today aren’t just buyers; they’re also product reviewers, technical consultants and scouts for legions of fellow shoppers hunting for bargains. Many use Web sites where links are posted for online coupons and cash-back offers—deals that some companies didn’t intend to circulate so widely. Others go to sites where people discuss how to find the lowest bids acceptable on travel-service auction sites. Even shoppers for big-ticket items like cars get an edge from sites that reveal prices paid for new and used cars.
Questions to Ask Yourself
- Does your company deal in products or services whose value is highly perishable or time-sensitive?
- Do you offer online coupons or have multiple discount strategies that can be used by unlimited numbers of consumers?
- Are your resellers sometimes discounting your goods without your authorization or knowledge?
- Is your company unaware of what’s being said on bargain-hunting and other shopping-related Web sites about its prices and products?
- Do you make last-minute offers at cut-rate prices without full appreciation as to how that might undermine your established pricing schemes or your brand image?
If you answered yes to any of these questions, your company may need to reassert control over its pricing power by pushing back against the increasing ability of online shoppers to obtain your lowest acceptable prices. Selling unlabeled, marked-down merchandise through an intermediary is one strategy, as is bundling the goods with additional offerings so that the base value you’ve assigned to the products is less clear.
Further assisted by search engines and so-called shopping bots that find the lowest prices for any number of products, shoppers today have unprecedented power to buy products at the sellers’ rock bottom. But if they come to expect such prices all the time, companies could see their long-term pricing power erode and profits slashed.
Here are eight tactics companies can use to limit the ability
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Very interesting, this professor is arguing against the price transparency provided by the internet and recommending to companies how to move around it. However, isn’t the goal of modern economics to increase price efficiency? Isn’t this a good thing? The article could be retitled “How to Recover Monopoly Pricing.” But that title would be less PC.
Plus the piece I think greatly overestimates the capacity of companies to be nimble enough to do the things he suggests. Generally speaking they are always behind the leading edge of the online consumer curve. He talks about linking goods and services to create relationships and take the focus off of pure price, giving the example of car dealerships. However I can go onto Amazon (say), buy a big ticket item, purely on price, and then still on Amazon, buy the warranty service package from someone else, also on price.
Great stuff here, and very relevant to the daily deal space. I just re-posted this on our blog, with a brief angle on how it affects our space: http://blog.dealcurrent.com/
This may be good advice for companies who are planning to set up shop, esp. in tangible goods. I find all these tenets impossible to apply to, say, telecom business in India. I’m afraid any competitive service industry will soon go the same way. Bharti has already started the price wars in SA thru Zain.