Prix fixe? Not on the Net
Price isn't right? Pick something else |
"The Internet enables what were previously isolated consumers to either band together or have much better information than they ever had before," said Dan Schulman, president and COO of Priceline.com Inc, (Nasdaq:PCLN), whose company lets consumers name the price they're willing to pay for things like airline tickets. "What you're seeing is the pricing system being turned upside down, with more and more power being transferred to the consumers."
'What you're seeing is the pricing system being turned upside down, with more and more power being transferred to the consumers.' -- Dan Schulman, Priceline president |
In many cases, the Internet simply makes using these models more efficient and opens them to broader groups of people.
Smart shopping
But new technologies such as intelligent agents and new Internet standards could truly revolutionize pricing, said Erik Brynjolfsson, co-director of the Center for eBusiness@MIT.
"Fixed prices are relatively new -- I'd say mainly in the past 100 years -- and they kind of go hand in hand with mass production and mass marketing," he said. "It's a pretty labor-intensive process in conventional stores to change a price. If you want to change the price of a menu, (you need to print a new one). If you print it in the morning you can update (prices) daily. On the Internet, you can update by the millisecond."
'We're seeing a lot of business models that couldn't exist without the Internet, but the fact that they can exist doesn't make them good models.' -- Mike May, analyst, Jupiter Communications |
"Five years from now, it will be much more common to have flexible pricing on the Internet than we see today," he said. "When push comes to shove, offline just doesn't have the capability to adjust prices that efficiently unless they develop some new technologies."
Consumer backlash?
But will consumers tire of all that fluidity? After all, many people dislike shopping for cars because they don't like having to haggle over the price.
And while companies like Priceline are working on methods to let you negotiate the price of your groceries, will consumers want to do that every time they buy a quart of milk?
"We're seeing a lot of business models that couldn't exist without the Internet, but the fact that they can exist doesn't make them good models," said Mike May, an analyst at Jupiter Communications in New York. "The models do deliver value, but at the expense of convenience and selection."
Technology also might reduce the need to bargain. Through personalization, sites might allow consumers to set their price preferences once, Priceline's Schulman said, "so the next time you go through you're one click away from your optimum price."
For that segment of the market that is willing to spend its time getting the best deal, the new pricing models available online are empowering, said Tom Van Horn, CEO at Mercata, a company that allows consumers to band together to get volume discounts. "We sell products that sell from $5,000 (down) to $15. When you have an item that costs $20 or $15 dollars, each person (that joins the buying group) may only drive price down pennies," he said. "You would think people wouldn't get that excited about pennies, but the empowerment is a huge factor. The fact that they are making something happen, even if it's only small change, is very important."
Brynjolfsson said companies like Mercata could eventually so revolutionize the power structure between buyers and sellers that Congress could, one day, pass an "anti-consumer-trust pact" to protect sellers from unfair collusion of buyers.
Historically, such examples of consumer power rarely occur, he said. "You had some cartels, but it was pretty hard to organize buyers before the Internet," he said. "The Internet allows hundreds or thousands or even millions (of people) to get together and buy."