Pricing has always been important to consumers. It doesn't matter if we're talking about the Web or not. And, pricing is really important for a small group of consumers, generally somewhere around 10 to 15%. Those are the pure-price shoppers of the world. They are like my friend, Wally.
I've known Wally since high school. He's a pure-price shopper in just about every way that you can imagine. He drinks generic beer, the kind that comes in yellow cans with big black letters. He will spend two to three hours of his time surfing the Web to save ten bucks on a coast-to-coast airfare.
For those people, the Web and the transparency of pricing is a godsend. The pure-price shoppers will surf the Web and will use agents such as mysimon, find the best price on anything they buy. The only way to win them is with the best price. Fortunately, they're only a small part of the population.
For the rest of the buying population, price is important but it's not the only or sometimes even the most important factor; and those are the folks we want to address when we talk about pricing policies.
We've already said, elsewhere in this book, that pricing on the Web is transparent. It's far easier to compare prices on the Web than it's ever been before. That means that Web prices are almost always lower than comparable prices in the physical world.
That means that most of the time, your question will not be, "Which of my prices should be higher, or should they be the same?ä Instead, your question is likely to be, "Should I have the same price in both locations, and should I opt for the margin that goes with a higher price in my physical area at the risk of lost sales, or should I risk lower margin by pricing everything like it would be on the Web?ä Like many other decisions about e-commerce, these decisions are strategic and tactical rather than technological.
Essentially, your choice is: Do I have different prices in the physical store versus the Web or do I have the same low price in both places?
There's another option, though, that you should be aware of. It's based on a theory called "known value pricing (KVP).%
Known value pricing says that folks judge the price being offered overall in an establishment by looking at a couple of items whose price they know. In any industry or product set, there are a limited number of products that everybody knows the price of. For grocery shoppers, it might be the price of a half-gallon of milk. For men's clothing buyers, it's probably the price of a good silk tie. For guitar players, it's the price of a stomp box.
Here's how you use this to your advantage. Make sure that your price on the known value pricing items in your business is a good and competitive one. I'm not necessarily talking about having it as a loss-leader. Just make it a good, low competitive price. The result will be that people who visit your site or your store will make a judgment about all of your prices, based on the item they know. If that price is good, their judgment will be favorable.
Making It Work
Remember that for 85 to 90% of the people who buy what you sell price is only part of the issue. Convenience is important, and so is the way they're treated. Delivery is important, and after-sale service. What you sell is the total package.
Created/Revised/Reviewed: 30 July 2002
This is only one Big Idea. You'll find more in Wally's book, What's the Big Idea? and in his Big Idea column. There's a complete list on the Main Big Idea page. You may also order the book by clicking here.
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