In April 2000, Forrester Research released a largely ignored report entitled, Pricing Gets Personal. It was completely overshadowed by another report released by Forrester in the same month: Demise of the Dot-Com Retailers. Doom and gloom sells better.
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Amazon's Experiment with Price
Not everyone ignored the report, which explained the role of offering differentiated pricing to different customers based on their sensitivity to price and their value to the merchant. In September 2000, Amazon.com suffered a public relations debacle when it was discovered that it was selling the same DVD to different customers on the same day at different prices. Oops. Amazon called it "price testing." Consumers claimed that the differentiated pricing was being offered based on customer shopping history. In any case, retailers have been justifiably cautious to engage in differentiated pricing since that episode. None of the press coverage even mentioned that Forrester Research had recommended that retailers use the rich knowledge of consumer behavior and motivation provided by the Web. Unless you were reading the ECommerce Guide, you may not have known about the Forrester angle (see Technology Is The Answer).
Jupiter's Take on Personalized Pricing
This month Jupiter Media Metrix, formerly Jupiter Communications, released a report entitled Personal Value Pricing. Carrie Johnson, the lead analyst on this topic in the Pricing Gets Personal report, must feel vindicated that Jupiter, Forrester's main competitor in the research space, is making the same recommendations, less thoughtfully, over a year later.
The low points of the Jupiter report are many. However, there are some pearls of wisdom - made mostly through specific examples of how their recommendations could be implemented - in its pages.
Recommendations Right Out of Business 101
The major recommendations of the report are:
- Do what Amazon did, but don't get caught
- Sell on value, not just on price
- Don't get caught
- Target value-seeking customers who are not price sensitive (see The Elitist Web)
- Don't get caught
Unimpressed so far?
Heres the good stuff:
- Use coupons to offer different prices to different consumers without their knowledge
- Bundle products to disguise the fact that you're providing different prices to different customers
The Good Stuff
One of the sound recommendations for actions that retailers can take right away is that merchants should not offer all consumers a discount on newly released, high-demand items.
According to the report: "When popular new CDs or books are released, retailers often heavily discount the items during the first week a new item is available in order to lure traffic to a site or in the hope of creating loyal customers who will keep coming back. However, many customers who purchase a CD the day that it is released do so because they really want the product, not because of the discounted price."
"For example, the Sony Clie PEG-S30 sold via auctions for an average price of $380 on its release date of October 11, 2000; by November 15 the average price had dropped to $332, and by December 15 the price was below $300."
One of the frequent recommendations in Jupiter's report is that companies try to simulate (or even participate in) auctions to get the price paid to approximate the value the consumer actually places on the item. This is particularly salient for overstock or end-of-season merchandise.
For liquidation, the price a business or consumer is willing to pay is often lower than the retail price, but higher than the fixed clearance price. Retailers can get consumers and businesses to pay the difference by utilizing falling-price models or auctions. This won't increase profits, but can reduce loss on inventory that is not moving.
In Sum: Flexible Pricing to Liquidate Overstock and Scarce, Expiring Items
The Jupiter Research Report is a mixed bag. Predictions aside - I'll leave analysis of predictions to eMarketer - this report is mostly a reiteration of the same things that businesses have always said they were doing, or trying to do: maximize revenue. The report is overshadowed by the example of Amazon's terrible experience with personalized pricing. Although, for all we know, Amazon and others are using targeted pricing in more subtle (and intelligent) ways to drive traffic and convert customers. The real value of this report isn't in its broad recommendations, but in its case studies and specific examples. Flexible pricing - what the consumer (or business) will bear - can help to reduce the loss associated with overstock and end-of-season items and to increase the margin on expiring items like tickets to sporting events and opening night performances.
Alexis D. Gutzman is an author, speaker, and consultant on e-business and
e-commerce topics. Her most recent book, The E-commerce Arsenal: 12
Technologies You Need to Prevail in the Digital Arena, was named one of the
30 best business books of this year. For more information on her upcoming
speaking engagements, please contact her directly at agutzman@internet.com.
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