February 28, 2001, 12:00 AM

How retailers are using web auctions to let customers help them set prices

(Page 2 of 2)

“In retail, pricing strategies are still pretty basic,” says Bryan Semple, vice president of product marketing at FairMarket. “But elsewhere, we’re subjected to dynamic pricing every day-every time you buy an airplane ticket, for instance. In the online retail world, as time goes on, pricing will become more dynamic.” Semple sees a day when short-run, dynamic pricing models including auctions will let manufacturers and retailers price-test new products and services among early adopters before launching product roll-outs.

Auction caution

?thers, however, advise caution in applying auction-based pricing, particularly the prices paid by early adopters, to other pricing strategies. “Auctions are famous for people overpaying, not underpaying,” says Robert Labatt, analyst with the Gartner Group, Stamford, Conn. “How translatable is that to the larger market? Early adopters might be willing to pay more than a mainstream user-or they might expect to pay less because they’re testing it as a beta-user.”

For the same reasons, Gomez’s Gambale adds that while there’s interest in experimenting with pricing based on data from auction prices, the data’s greater value to e-retailers may be the information it yields on shoppers’ intention and interests. “A lot of sites now sponsor person-to-person auctions,” he says. “There’s so much competition, in fact, that the earlier model of charging user fees has been dropped and instead sites are gathering data from the auctions and selling it as a package to research firms and retailers themselves.”

The data can show, for example, the age and demographic of consumers interested in various products. “And if consumers show interest in a particular item, they also may have interest in a similar one,” Gambale says. “It’s this aspect of personalization that has value to e-retailers of new merchandise. In terms of price, they can’t compete in some areas with the used marketplace, but they already know that and that’s not the information they’re looking for.”

Strategy crossover

When it comes to pricing in e-retail, the good news is that the Internet is giving merchants auctions and other dynamic pricing solutions for moving more merchandise and recapturing more inventory value. They can yield data that bring e-retailers even closer to their customers. But they must be used carefully-especially when combined with the fixed-price strategy retailers depend on to project and hit the quarterly targets that benchmark the company’s performance. In other words, in an age when shoppers can use a PDA to compare shelf prices with web prices on the spot, is there such a thing as too much price transparency, at least, for multi-channel sellers? Not, suggest industry-watchers, for merchants who look beyond price for additional ways such as service to generate value.

“We’re seeing an intermingling of pricing strategies and technologies online,” Gambale says. “The Internet is great at reducing the friction of buying commodity goods. At the same time, it can put additional pressure on margins, so pricing strategies have to be used the right way with the right products. That’s the challenge, but we do expect to see integration of dynamic pricing with fixed and fixed with dynamic.” l


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