Pricing Feasible to test new pricing models n Traditional price setting is being modernized due to information availability n Internet reduces transaction costs for consumers n On-line prices are usually lower n HED 460
Pricing n Most prevalent model is fixed pricing Prices are set; consumers decide n 79% of all e-tailers use it n Amazon. com, buy. com, etoys. com, gap. com, macys. com n HED 460
Auctions n n n Publicly held sale Property/goods sold to highest bidder 20% of on-line sales Amazon, e. Bay, u. Bid, Yahoo!, auction-sniper, online-auctions. net Reverse auction n Buyers specify; sellers compete to offer best price – i. Offer. com HED 460
Auctions - problems Inefficient commerce and pricing n Artificially bidding up prices n Collusion n Two bidders can illegally team up to win Payment n New systems – credit card is debited HED 460
Auctions - benefits Create hype and bolster traffic n Improve inventory management n n Excess goods/returned merchandise Generates repeat business n Estimate consumer demand n Evaluate price points for new products n HED 460
Name your own price Consumer’s suggest price n Service presents price to sellers n Sellers decide whether to accept price n n n Similar to reverse auction Priceline. com HED 460
Demand aggregation Group buying n Service assembles buyers who want to purchase same product n More buyers = lower prices n 1% of online sales (b to b) n Unistarllc. com, worldwideretailexchange. org n HED 460
HED 460
Automatic price decline Initial retail n Prices fall by seller-determined % at regular intervals n Prices quit declining when all is sold n Travelnetcentral. com - hotels n HED 460
Barter sites Person-to-person trading communities n Trade second-hand goods n Users negotiate with each other and reach agreement online n Mail items to each other n webswap. com n HED 460
Internet Levels playing field n Consumers n n n Lowers transaction costs Price comparisons, easily and quickly Retailers n n Easy to shop the competition Ability to track consumer clicks online n 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 n Prices fluctuate in real time based on supply/demand shifts n Includes most models except fixed n Most sites sell closeouts, outdated goods and excess merchandise n HED 460
Dynamic pricing This environment reflects true market value (values that consumers place on products) n Traditional pricing is based on production costs, no consideration of consumer value n HED 460
Dynamic pricing n Companies may lose gross margin dollars If consumers are willing to pay higher but find a deal n But volume is higher n HED 460
Differential pricing n Charges different customers different prices for same product n Airlines Falls between fixed and dynamic but closer to fixed n Categorize customers into groups n HED 460
Differential pricing Implemented with loyalty programs n Retailers can control which customers to retain and lose n Tailor different messages to different customers n n Price promo vs. content/new products HED 460
Taxation 3 -year moratorium imposed in 1998 ended Oct. 21, 2001 - extended n Congress plans to pass an extension by year’s end n HED 460
Taxation Why should Internet commerce be taxed? n Why should Internet commerce NOT be taxed? n HED 460
Taxation - for Required to collect from customers who live in states of e-tailer presence n State/local govts argue loss of sales tax revenue harms n Bricks and mortar retail n Local schools n Local governments n HED 460
Taxation - against Retailers argue state/local tax codes are complex n Lost tax revenue is a drop in the bucket since e-commerce is a small percentage of total retail sales n HED 460
Taxation - Michigan State says it is no different than catalog n Puts Internet and stores on level playing field n Cost to collect is $2 million n Additional revenue is $240 million n HED 460
Taxation - future Moratorium was extended n Tax codes need to be simplified n Sales tax calculation and remittance software needs refining and validating n HED 460
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