Internet Effect on Price

For the first time in the history of marketing, the Internet provides consumers with an advantage over retailers. While prices for commodities and services have always fluctuated over time based on supply and demand (Dolan and Jeuland, 1981), the advent of Internet sales has meant much greater competition and the need to compete through multiple channels benefiting consumers identifying the best price for a product (Zettelmeyer, 2000).

Kotler and Armstrong (2014, pp.345) describe the fluctuation of prices as Dynamic pricing, adjusting prices in response to consumer demand.  When discussing dynamic pricing on the Internet, we must acknowledge the role technology contributes. Before computers, dynamic pricing was achievable only through manual updates to tariffs, but with the arrival of computers and the Internet, there was an increase in the complexity of rates to a flexible price policy where database technology had to be used to vary prices and match real-time demand (Odlyzko, 2001).

Airline Sales

This is particularly true of the airline industry which has seen profit margins squeezed as savvy consumers have the opportunity to compare tickets from a range of airlines and resellers, some cheaper than others (Buhalisa and Law, 2008). Kotler and Armstrong (2014, pp.316-317) use the example of low-cost European carrier Ryanair, who famously promote themselves as offering the lowest fares but charge for virtually every other amenity as an extra. This pricing model would not be possible without the use of computers as it would be too complex to operate, especially since prices can rise or fall dependant on demand.

Interestingly, since Kotler and Armstrong’s case study, Ryanair have been forced to change their ‘no frills’ pricing policy to make them more competitive with their industry rivals as they have seen profits fall dramatically (Topham, 2013). However, in this case, price was not the only factor as while Ryanair’s competitors are more expensive, they offer a better quality of service and Ryanair have had to respond to the changing market by offering an improved service while retaining competitive prices.

Hotel Reservations

Quality of service has been an important deciding factor determining the price of hotel rooms before and after the advent of Internet booking. Noone and Mattila (2009) note the importance of the price point in this sector similar to the airline industry but online reviews and rating sites such as Tripadvisor provide an additional level of complexity when determining an online price. The best rated hotels can command higher prices than their lower-rated rival, making quality and price both the deciding factors for a customer.

Book Sales

Unlike the airline and hotel industry, the book industry competes less on price and more on the delivery platform (e.g. Kindle, iPad, Kobo, etc.). While price is a determining factor in the purchase, consumers are most likely to purchase the book for their compatible device (Loebbecke, Soehnel, Weniger and Weiss, 2010).

Prices for eBooks remain relatively high online compared to physical books but the work of Steve Jobs with the publishing industry in the late 2000’s set a precedent for online book sales which other retailers have since followed. Online book sales overtook physical book sales for the first time in 2010, not because of price but because of convenience (Ulanoff, 2012).

 

References

Buhalisa, D. & Law, R. (2008) ‘Progress in information technology and tourism management: 20 years on and 10 years after the Internet—The state of eTourism research’, Tourism Management, 29(4), pp. 609–623, ScienceDirect. [Online]. Available from: http://dx.doi.org/10.1016/j.tourman.2008.01.005 (Accessed: 15 February 2014).

Dolan, R. & Jeuland, A. (1981) ‘Experience Curves and Dynamic Demand Models: Implications for optimal pricing strategies’, Journal of Marketing, 45(1), pp.52-62, Ebscohost. [Online]. Available from: http://search.ebscohost.com.ezproxy.liv.ac.uk/login.aspx?direct=true&db=bth&AN=4999390&site=eds-live&scope=site (Accessed: 15 February 2014).

Kotler, P. & Armstrong, G. (2014) Principles of Marketing, 15th Edition. London: Pearson Education Ltd.

Loebbecke, C., Soehnel, A., Weniger, S. & Weiss, T. (2010) ‘Innovating for the Mobile End-User Market: Amazon’s Kindle 2 Strategy as Emerging Business Model’, Mobile Business and 2010 Ninth Global Mobility Roundtable (ICMB-GMR), 2010 Ninth International Conference on, Issue Date: 13-15 June 2010, pp. 51-57, IEEEXplore. [Online]. Available from: http://ieeexplore.ieee.org.ezproxy.liv.ac.uk/xpls/icp.jsp?arnumber=5494789 (Accessed: 15 February 2014).

Noone, B. & Mattila, A. (2009) ‘Hotel revenue management and the Internet: The effect of price presentation strategies on customers’ willingness to book’, International Journal of Hospitality Management, 28(2), pp. 272–279, ScienceDirect. [Online]. Available from: http://dx.doi.org/10.1016/j.ijhm.2008.09.004 (Accessed: 15 February 2014).

Odlyzko, A. (2001) ‘Internet pricing and the history of communications’, Computer Networks, 36(5-6), pp. 493–517, ScienceDirect. [Online]. Available from: http://dx.doi.org/10.1016/S1389-1286(01)00188-8 (Accessed: 15 February 2014).

Topham, G. (2013) Ryanair’s new touchy-feely O’Leary hits turbulence but sees clearer air ahead. [Online]. Available from: http://www.theguardian.com/business/2013/nov/05/ryanair-michael-oleary-investors-future (Accessed: 15 February 2014).

Ulanoff, L. (2012) How Steve Jobs Got Apple Into Trouble Over Ebooks. [Online]. Available from: http://mashable.com/2012/04/11/apple-jobs-ebooks/ (Accessed: 15 February 2014).

Zettelmeyer, F. (2000) ‘Expanding to the Internet: Pricing and Communications Strategies When Firms Compete on Multiple Channels’, Journal of Marketing Research, 37(3), pp. 292-308, AMA. [Online]. Available from: http://journals.ama.org.ezproxy.liv.ac.uk/doi/abs/10.1509/jmkr.37.3.292.18777  (Accessed: 15 February 2014).

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