Essay preview
FAIR
PRICING
ON
THE
INTERNET
1. Introduction
Among marketing mix variables, price alone directly affects a firm’s revenue. Setting prices is a critical issue manager face and prices signal information. It conveys the value of a product or service to consumers. Throughout history, price has been a major factor in influencing buyer decisions. Thus, it is essential for firms to carefully implement their pricing strategies in order to attract sales and capture their profit objectives. Pricing practices have changed significantly in recent years. Many firms are bucking the low-price trend and have been successful in trading consumes up to more expensive products and services by combining unique product formulations with engaging marketing campaigns. Today the Internet is also partially reversing the fixed pricing trend (Amstrong et al., 2000).
Internet population has been an emphasis on Internet exchanges occurring at lower prices than in conventional outlets (Kung et al., 2002). Consumers began using the Internet to seek lower prices and entertainment
and
today
it
is
also
a
convenient
way
to
shop.
Consumers may find higher prices online due to factors such as auctions, price discrimination, and branding (Koch et al., 2002; Vulkan,
2003).
Consumers
shopping
in
an
interactive
environment
should choose a familiar brand over an unfamiliar one due to the
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known
brand's
implicit
guarantee
(Alba
et
al.,
1997).
Brands
decrease price elasticity and increase the seller’s power (Oh, 2003; Vulkan, 2003), with one study showing that online, brands charged 3.1 per cent more than non-brands.
Finally, consumers should also find greater price dispersion on the Internet than in off-line markets (Pan et al., 2003). Studies on books and the airline tickets showed prices ranges from 18 to 59 per cent. The range of prices on the Web and that customers can easily compare services, products and prices, should force some prices down (Clay et al., 2001; Vulkan, 2003) and make it increasingly difficult for some companies to earn a profit (Birch et al., 1997).
Applying the principles of economics to setting prices on the Internet can be precarious to the reputation of a firm. Amazon.com, the cyberspace retailer, encountered problems when some customers who
had
bought
discussion
DVD
boards.
movies
News
began
media
to
picked
compare
up
on
prices
the
on
online
disparity
and
consumer outcry erupted. Amazon.com finally refunded 6,896 customers an average of $3 (Kong, 2000). Setting prices based on shoppers incomes or buying habits is known as ‘‘dynamic pricing’’ (Kannan et al., 2001). Dynamic pricing is not new. Retailers frequently charge more for goods in stores in better neighborhoods, or more in areas of
less
competition.
For
example,
Wal-Marts
prices
in
remote
locations with no direct competition from a large discounter were 6% higher than that at locations where it was next to a Kmart (Foley et al., 1996). The price of a can of Coke varies with the type of outlet, from DM 2.20 in newsstand in a train station, to DM 0.64 in
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a
large
supermarket.
Airlines
are
also
known
to
change
prices
frequently according to demand and the timing of a reservation. Very few people seem to complain about such pricing practices. On the Internet, opportunities for dynamic pricing are greater for at least two reasons – customer information can be more easily collected and list
prices
can
be
Furthermore,
it
is
more
easily
easier
to
changed
check
(Dolan
et
competitor’s
al.,
2000).
prices
and
availability of products. With such information, the dynamics of demand
and
supply
can
be
better
understood
and
prices
adjusted
relationships
require
more
on
accordingly (Varini et al., 2003).
Most
fairness.
mutually
The
satisfying
perception
of
exchange
fairness
is
critical
the
Internet than in traditional channels, since feasible practices in brick-and-mortar stores, such as that adopted by Wal-Mart Stores, Inc., may not be tolerated on the Internet. (Huang et al., 2005) This paper aims to examine consumers’ perceptions of fairness of
pricing
on
discrimination
the
and
Internet,
relation
pricing
between
mechanisms,
fair
pricing
briefly
and
price
customer
purchasing intention.
2. Literature review
Fairness is the belief of the justice of an outcome, process, or interaction (Bolton et al., 2003). Perceptions of fairness are necessary if the reputation and credibility of the firm are to be advanced, both of which can translate into competitive advantage.
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For instance, customers' perceived fairness of a retailer's actions can affect customer retention. Further, a belief that an outcome, process,
or
interaction
is
unjust
tends
to
result
in
a
global
perception of unfairness (Bolton et al., 2003;). Though other means are useful for gauging fairness (e.g., interactional fairness), the most
prominent
in
the
literature
are
distributive
fairness
and
procedural fairness (Chebat et al., 2003; Bolton et al., 2002). Distributive
fairness
relates
to
an
individual's
perception
of
resource allocation or the outcome of an exchange (Adams, 1965; Deutsch,
1975).
Three
principles
underlie
distributive
fairness:
equity, equality, and need.
Equity concerns relate to customers' expectations to receive a certain level of benefits that is commensurate with their costs of acquiring those benefits. For instance, customers who patronize a small clothing store three times a week will expect to receive some level of preferential treatment.
The equality principle states that similar customers should be treated alike. Restaurant patrons, for instance, expect that servers will not give unequal amounts of treatment to similar customers. However, the need principle asserts that individuals wit...