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The present state of the game 'hide and seek' in pricing
Abstract
The first and second decade of the 21st century brought about new
global economic and technological changes, which place pricing even more in the forefront of social and managerial considerations. It is enough to refer to three striking trends: 1) the global downturn of the economy resulting in a radical change of consumer behaviour, in increasing price sensitivity of the people; 2) the rapid economic development of the big emerging countries resulting in the clutter of goods and services on the world market with quite different cost structures compared to those of the advanced countries; 3) the
fast development of the information and communication technology making it possible for customers to compare the price offers of the different sellers and enabling sellers to implement more and more sophisticated pricing methods to make the comparison more difficult. The objective of this paper is to shed light to a new game played among sellers and buyers to get temporary result in obtaining bigger share from the ‘pie’ called by the economists as producers’ and consumers’ surplus. The game is referred to by the paper as ‘hide and seek in pricing’. The study intends to analyse the pricing behaviour of companies and consumers in this new setting.
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A tanulmányban bemutatott kutatás célja annak feltárása, hogy a globális megatrendek által befolyásolt és
megváltoztatott üzleti és marketingkörnyezet milyen hatással lesz a marketingkommunikáció alakulására
az elkövetkező évtizedben. A kutatás nemzetközi jellege lehetőséget adott arra, hogy a szerző összehasonlítsa,
hogy a fejlett, a feltörekvő és az átmeneti országokban a szakértők és véleményvezetők miképpen értékelik
a globális megatrendek hatásait az adott ország üzleti környezetére, illetve mit gondolnak arról, hogy
mindezek hatására hogyan fog alakulni a marketingkommunikáció.
Perceived fairness of revenue management (RM) pricing is a serious concern, as RM uses different prices for funda- mentally the same service. The authors examine the effects of familiarity with an RM pricing practice, framing of prices, and fencing condition (i.e., whether a respondent was advantaged or disadvantaged by an RM price) on fairness perceptions. The authors conduct two experiments and find that familiarity moderated the effects of framing and fencing condition on consumers' fairness perceptions. Specifically, framing and fencing condition had strong effects on perceived fairness when respondents were less familiar with a pricing practice. However, when familiar- ity was high, neither the framing nor fencing condition effect was significant. Our findings suggest that familiarity may be a boundary condition for prospect theory.
This study compares prices offered by multiple Internet retailers. This task is challenging because e-tailers cannot present their entire assortments to each consumer. Therefore, the quality of the product assortments presented by different e-tailers to each consumer is not directly comparable on an item-by-item basis, resulting in non-homogeneous offerings across retailers. We further consider the interaction between retailers (product information presentation format) and consumers (product information search strategies), which makes price comparisons among the retailers even more non-homogeneous. To grapple with this quality-adjusted price comparison problem for non-homogeneous products, we use a stochastic-frontier hedonic-price regression model to find the “lowest” theoretical price for a product given its characteristics. We then assess the price efficiency of the product as the ratio between this lowest price and the offered market price. This framework allows for the comparison of retailers in their ability to offer the “best deals” even when their actual assortments are not directly comparable in quality. Moreover, this framework provides Internet retailers with a relative measure of price efficiency. This helps them understand when and where they offer competitive prices to consumers. We illustrate our approach empirically in a comparison of price efficiency among three major Internet travel agents on a sample of posted itineraries and airfares. Furthermore, we demonstrate that the price efficiency of an Internet travel agent depends on the format of its website and on consumers' search strategies.
This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks. Overall, more than 11,000 firms participated in the survey. The results are very robust across countries. Firms operate in monopolistically competitive markets, where prices are mostly set following mark-up rules and where price discrimination is a common practice. Our evidence suggests that both time- and state-dependent pricing strategies are applied by firms in the euro area: around one-third of the companies follow mainly time-dependent pricing rules while two-thirds use pricing rules with some element of state-dependence. Although the majority of firms take into account a wide range of information, including past and expected economic developments, about one-third adopts a purely backward-looking behaviour. The pattern of results lends support to the recent wave of estimations of hybrid versions of the New Keynesian Phillips Curve. Price stickiness arises both at the stage when firms review their prices and again when they actually change prices. The most relevant factors underlying price rigidity are customer relationships - as expressed in the theories about explicit and implicit contracts - and thus, are mainly found at the price changing (second) stage of the price adjustment process. Finally, we provide evidence that firms adjust prices asymmetrically in response to shocks, depending on the direction of the adjustment and the source of the shock: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.
A fundamental dilemma confronts retailers with stand-alone sites on the World Wide Web and those attempting to build electronic malls for delivery via the Internet, online services, or interactive television (Alba et al. 1997). For consumers, the main potential advantage of electronic shopping over other channels is a reduction in search costs for products and product-related information. Retailers, however, fear that such lowering of consumers' search costs will intensify competition and lower margins by expanding the scope of competition from local to national and international. Some retailers' electronic offerings have been constructed to thwart comparison shopping and to ward off price competition, dimming the appeal of many initial electronic shopping services. Ceteris paribus, if electronic shopping lowers the cost of acquiring price information, it should increase price sensitivity, just as is the case for price advertising. In a similar vein, though, electronic shopping can lower the cost of search for quality information. Most analyses ignore the offsetting potential of the latter effect to lower price sensitivity in the current period. They also ignore the potential of maximally transparent shopping systems to produce welfare gains that give consumers a long-term reason to give repeat business to electronic merchants (cf. Alba et al. 1997, Bakos 1997).
We test conditions under which lowered search costs should increase or decrease price sensitivity. We conducted an experiment in which we varied independently three different search costs via electronic shopping: search cost for price information, search cost for quality information within a given store, and search cost for comparing across two competing electronic wine stores. Consumers spent their own money purchasing wines from two competing electronic merchants selling some overlapping and some unique wines.
We show four primary empirical results. First, for differentiated products like wines, lowering the cost of search for quality information reduced price sensitivity. Second, price sensitivity for wines common to both stores increased when cross-store comparison was made easy, as many analysts have assumed. However, easy cross-store comparison had no effect on price sensitivity for unique wines. Third, making information environments more transparent by lowering all three search costs produced welfare gains for consumers. They liked the shopping experience more, selected wines they liked more in subsequent tasting, and their retention probability was higher when they were contacted two months later and invited to continue using the electronic shopping service from home. Fourth, we examined the implications of these results for manufacturers and examined how market shares of wines sold by two stores or one were affected by search costs. When store comparison was difficult, results showed that the market share of common wines was proportional to share of distribution; but when store comparison was made easy, the market share returns to distribution decreased signi.cantly. All these results suggest incentives for retailers carrying differentiated goods to make information environments maximally transparent, but to avoid price competition by carrying more unique merchandise.
For decades, the majority of research studies conducted on consumer price perceptions have adopted a uni-dimensional view of price, in which price was assumed to consist of a single number (for example, $19.99). However, since the mid-1990s a growing volume of consumer research studies have recognized that prices can often be far more complex than a single number, and may systematically consist of multiple dimensions. The recognition of this fact, triggered by early studies of the topic (for example, Estelami, 1996, 1997; Gourville, 1998; Morwitz, Greenleaf and Johnson, 1998), has opened new channels for researching the ways in which the complexities of price may inhibit the human brain from an objective evaluation of price offers (for example, Gendall et al., 2006; Kim and Kramer, 2006; Varki, Sabherwal, Della Bitta and Moore, 2006). The significance of this line of inquiry has further increased during the past decade, which has witnessed an explosive growth in the markets for consumer and financial services, where multi-dimensional prices are used frequently.
Customers' perceptions of price differ in the online environment due to the presence of price comparison sites. The purpose of this study is to examine how price comparison sites affect price and value perceptions of online shoppers across different product types and price consciousness levels of online shoppers. The results of the study indicate that the price information provided by an online price comparison site influences online shoppers' perceptions of internal reference prices. However, the influence of a price comparison site on value perception differs according to product type. As evidenced by the significant interaction effect between product type and price comparison site information, the presence of price comparison sites increases both transaction and acquisition value perceptions for the non-look-and-feel product category (e.g., notebook computers), but not for the look-and-feel product category (e.g., jeans). Contrary to the expectation, online shoppers' price consciousness influences their price and value perceptions independently of price comparison site information.
In an attempt to gain a better position in haggling, consumers often seek a seller's pricing information (e.g., whether the posted price is negotiable, the discount and transaction prices) before going to that seller. Although traditionally difficult to obtain, such information is becoming increasingly available due to consumer price posting (CPP), whereby consumers post and share their purchase price information on the Internet. In this analytical study, we consider a market in which a seller, who chooses between a fixed price policy and a haggling policy, serves two types of consumers who differ in their willingness to pay and haggling costs. We explore how CPP can affect consumers' behavior and the seller's pricing strategies (i.e., pricing policy and the associated prices). In the absence of CPP, our model features a two-sided uncertainty: the seller does not know individual consumer's type and thus may find it optimal to use a haggling policy to price discriminate consumers, whereas consumers do not readily observe the seller's cost type and pricing policy, and thus are uncertain whether their haggling will be fruitful. In the presence of CPP, consumers' uncertainty about the seller's pricing policy is resolved. Because CPP can improve price transparency, inhibit consumers' acceptance of a posted price and spur price haggling, it seems apparent that it should benefit consumers and hurt the seller. However, our analysis shows that CPP can lead to fewer purchases, higher prices and even a greater seller profit. It further shows that although CPP surely increases information accessibility, it can also reduce the amount of information available to consumers. These results are in sharp contrast to the conventional wisdom in the literature.
Emotions are mental states of readiness that arise from appraisals of events or one’s own thoughts. In this article, the authors
discuss the differentiation of emotions from affect, moods, and attitudes, and outline an appraisal theory of emotions. Next,
various measurement issues are considered. This is followed by an analysis of the role of arousal in emotions. Emotions as
markers, mediators, and moderators of consumer responses are then analyzed. The authors turn next to the influence of emotions
on cognitive processes, which is followed by a study of the implications of emotions for volitions, goal-directed behavior,
and decisions to help. Emotions and customer satisfaction are briefly explored, too. The article closes with a number of questions
for future research.
Airline revenue management has changed over the last years influenced by the advent of Internet distribution and global distribution system (GDS) functions like origin and destination control and seamless availability. The increased ability to price discriminate is seen as the main driver behind those changes. We analyse current GDS functionality under this aspect and describe how it can be used to implement dynamic pricing, similar to the possibilities of the Internet. We discuss shortcomings of current GDS distribution and propose solutions to improve the current capabilities. We present some ideas on how to overcome the booking class limitation, which is still the major drawback compared to direct Internet distribution.Journal of Revenue and Pricing Management (2009) 8, 255-266. doi:10.1057/rpm.2008.57; published online 16 January 2009
Nonlinear pricing is pricing that is strictly proportional to the quantity purchased. For example, railroad tariffs are often based on weight, volume, and distance to be shipped; airlines offer frequent flyer bonuses based on miles flown; electric utilities charge different rates for different amounts of electricity used combined with the time it is used based on peak power demands. The book is divided into two parts. The first in a non-mathematical discussion of nonlinear pricing and the second part is more technical and is intended for readers interested in advanced topics.
Two studies explore the conditions under which redundant reference price information (ARP) is likely to influence consumers’ perceptions of an advertised sale price. Study 1 suggests that an ARP enhances offer-value, but only for consumers who are not involved with the product. Study 2 incorporates a wider array of price presentation tactics (SP Only, SP+ARP, SP+%Saving and SP+ARP+%Saving) and investigates a range of responses (transaction value, acquisition value and subsequent purchase intentions). Again, results suggest that ARP only influences perceived transaction value, and saving information only impacts purchase intentions. Most importantly, these effects are seen only when involvement is low.
The rapid erosion of privacy poses numerous puzzles. Why is it occurring, and why do people care about it? This paper proposes an explanation for many of these puzzles in terms of the increasing importance of price discrimination. Privacy appears to be declining largely in order to facilitate difierential pricing, which ofiers greater social and economic gains than auctions or shopping agents. The thesis of this paper is that what really motivates commercial organizations (even though they often do not realize it clearly themselves) is the growing incentive to price discriminate, coupled with the increasing ability to price discriminate. It is the same incentive that has led to the airline yield management system, with a complex and constantly changing array of prices. It is also the same incentive that led railroads to invent a variety of price and quality difierentiation schemes in the 19th century. Privacy intrusions serve to provide the information that allows sellers to determine buyers' willingness to pay. They also allow monitoring of usage, to ensure that arbitrage is not used to bypass discriminatory pricing.Economically, price discrimination is usually regarded as desirable, since it often increases the efficiency of the economy. That is why it is frequently promoted by governments, either through explicit mandates or through indirect means. On the other hand, price discrimination often arouses strong opposition from the public.There is no easy resolution to the conflict between sellers; incentives to price discriminate and buyers' resistance to such measures. The continuing tension between these two factors will have important consequences for the nature of the economy. It will also determine which technologies will be adopted widely. Governments will likely play an increasing role in controlling pricing, although their roles will continue to be ambiguous. Sellers are likely to rely to an even greater extent on techniques such as bundling that will allow them to extract more consumer surplus and also to conceal the extent of price discrimination. Micropayments and auctions are likely to play a smaller role than is often expected. In general, because of strong conflicting pressures, privacy is likely to prove an intractable problem that will be prominent on the the public agenda for the foreseeable future.
Sumario: I. Prices and demand -- II. Developing internal costs for pricing -- III. Pricing decisions and price administration -- IV. Special topics on pricing.
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