Just because technology enables you to do something, doesn't mean you should do it. It's a lesson online retailers, who are able to play with pricing more than ever on the Internet, are learning fast. Among them: Amazon.com, one of the most sophisticated e-tailers, which earlier this month experimented with random price discounts on DVDs. Last week, it sent e-mails promising refunds to DVD customers who found out about pricing discrepancies and felt cheated.
"We will be crediting those customers the difference in price. This is a standing policy going forward," said Jason Kilar, general manager of DVD and video business at Amazon. Kilar's comments were posted in a letter to DVDTalk.com's DVD Talk Forum, where the price discrepancies first surfaced. But the news didn't mollify most participants in the popular discussion site, and some promised to boycott the bookseller.
Most retailers avoid giving multiple prices for the same goods for fear of irritating customers. But the desire to learn more about customers' price thresholds may be strong enough to persuade some retailers to keep experimenting - as long as they take pains not to alienate customers.
Several forms of "dynamic pricing" have already arisen on the Internet, giving businesses and consumers new ways to buy goods cheaply or sell them quickly. These include Priceline.com's name-your-own-price service, the popular auctions and less-well-known schemes, such as group buying and "reverse auctions," in which an individual buyer dictates prices to bidding sellers. Auctions help businesses quickly set prices because they can watch demand drop off as the price rises, said Mark Schwartz, chief executive of Auctiva.com.
"Price testing in general is one of the great advantages of being on the Net," said Elaine Rubin, president of Shop.org, a trade association for Internet retailers. She said she was unaware of other companies conducting random price tests. "It's been a little more planned, usually based more on specific or psychographic profiles than blanket random testing."
There's nothing illegal about retailers offering goods at different prices to different customers. Retailers can do what they want as long as they observe consumer protection laws, said Erik Gordon, retailing research director at the University of Florida. The risk comes from public opinion. "There is potential for big backlash. Consumers want low prices and they want fair prices. Prices that change without apparent reason seem arbitrary, not fair," he says.
That's what Amazon found out from its DVD customers.
But Internet merchants are still thinking up ways to tinker with prices. One thing Schwartz says he wants to develop at Auctiva is technology that lets sellers track buyers' demand during the course of an auction, so that sellers might then make an offer to losing bidders at the next-highest price levels. ENDS
