The Price Isn’t Right

By Detlef Schoder and Alex Talalayevsky

Thanks to the Internet, companies have lost control of their pricing power. Here’s how they can get it back.

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

1. Does your company deal in products or services whose value is highly perishable or time-sensitive?
2. Do you offer online coupons or have multiple discount strategies that can be used by unlimited numbers of consumers?
3. Are your resellers sometimes discounting your goods without your authorization or knowledge?
4. Is your company unaware of what’s being said on bargain-hunting and other shopping-related Web sites about its prices and products?
5. 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 of bargain hunters to find their deepest discounts and lowest acceptable prices.

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By Detlef Schoder and Alex Talalayevsky
http://sloanreview.mit.edu

Thanks to the Internet, companies have lost control of their pricing power. Here’s how they can get it back.

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

  1. Does your company deal in products or services whose value is highly perishable or time-sensitive?
  2. Do you offer online coupons or have multiple discount strategies that can be used by unlimited numbers of consumers?
  3. Are your resellers sometimes discounting your goods without your authorization or knowledge?
  4. Is your company unaware of what’s being said on bargain-hunting and other shopping-related Web sites about its prices and products?
  5. 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 of bargain hunters to find their deepest discounts and lowest acceptable prices. Leer más “The Price Isn’t Right”