U.S. Consumers Will Force No Dynamic Pricing

One of my favorite e-tailing sites, Amazon.com Inc., got caught messing around with prices a few weeks ago, charging some consumers more money than others for the very same DVD.

Amazon found out what former Net Prophet Sean M. Dugan noted in this space at that time: Effective dynamic pricing is tricky.

Dynamic pricing -- pricing according to your estimate of how much a given consumer is willing to pay -- is tricky because American consumers won't put up with it if they know about it.

That's what stopped the Amazon.com pricing trial dead in its tracks. If the Internet gave Amazon the ability to track the buying habits of consumers and technology gave the company the ability to charge different prices to different consumers, then it follows that the Internet also empowered consumers.

Specifically, the Internet gave consumers the ability to compare notes. Nothing breeds outrage in the heart of an American consumer as much as the notion that he or she was charged more than someone else was for the same product.

And that's just what consumers found out on online bulletin boards about Amazon's DVD pricing.

The DVD scandal was actually the second known time that Amazon had performed such a test. Last spring the company was snagged for selling an MP3 player for $50 less to some consumers. When consumers caught wind of the discrepancy, Amazon apologized and offered refunds to those consumers who paid more.

Soon after the recent DVD flap began, Amazon again apologized for the test, denied it was dynamic pricing, and offered refunds to consumers who paid more. More importantly, this time around Amazon.com promised never to do such a thing again.

That's a big promise coming from the top dog of Internet retail. Although unpopular with consumers, the allure of dynamic pricing is a tempting concept for many in the Internet-retail space. In spite of its well-known consumer-friendly image, the temptation proved too much for Amazon.

Indeed, many cash-strapped dot-com business-to-consumer e-commerce Web sites may find such a strategy particularly enticing now that they are no longer the sweethearts of Wall Street and venture capitalists.

But if these sites want to be around a year from now, they need to learn from Amazon.com's experience and subsequent promise to consumers and forego the temptation to play with dynamic pricing.

Although it may increase the top line in the short term, once consumers find out about it, you can bet they'll abandon your site for an-other -- especially if you sell commodity consumer goods such as DVDs, books, or music.

Retailers may point out that consumers are willing to pay a higher price sometimes. That is absolutely true. Consumers may pay more for convenience or because they want a certain product right away. But in those cases, consumers know why they are paying more and have factored that value into the price they are willing to pay.

Auction sites are the perfect example of this.

At eBay consumers bid what they are willing to pay for an item, and that item goes to the one who is willing to pay the most.

Last summer, an advance press copy of the latest novel in Janet Evanovich's Stephanie Plum series sold for nearly US$500 to fans who couldn't wait to find out the answer to the last book's cliff-hanger.

But paying that price was a consumer decision. Those consumers knew they could wait a few weeks and pay the regular retail list price of $24.95 for the book -- they just wanted it right away.

Would they have paid nearly $500 as a re-tail price? I seriously doubt it. Once a product is available in multiple channels, consumers have more choices and can be picky about who they buy from and at what price.

And if no value is added, e-tailers can forget about getting that premium price.

Jessica Davis is an editor at large in InfoWorld's news department. Contact her at jessica_davis@infoworld.com.

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