Chapter 10:
Price: The Online Value
Review Questions
1. How does fixed pricing differ from dynamic pricing?
Fixed pricing (also called menu pricing) occurs when sellers set the price and buyers
must take it or leave it. With fixed pricing, everyone pays the same price. This is
2. What is price transparency and why is it an important concept for e-marketers
to understand?
The Internet’s role as an information equalizer, allows for price transparency—the
3. List the main factors that put downward pressure on prices in the Internet
channel.
Information technology can be expensive, but once it is running smoothly it can
create tremendous cost efficiencies—putting both upward and downward pressure on
prices.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer’s perspective, how does the Internet affect costs?
2
6. What is an efficient market? What makes the Internet an efficient market and
what indicates that it is not an efficient market?
The Internet’s role as an information equalizer, allows for price transparency—the
idea that both buyers and sellers can view all competitive prices for items sold online.
This feature would tend to commoditize products sold online, making the Internet a
7. How do e-marketers use geographic, value segment, and negotiated pricing
online?
With geographic segment pricing, a company sets different prices when selling a
product in different geographic areas. An online seller often knows where the user
resides because server logs register the user’s IP address, and the top level domain
With value segment pricing, the seller recognizes that not all customers provide
equal value to the firm. The well-known Pareto Principle states that 80% of a firm’s
business usually comes from the top 20% of customers.
While sellers usually set pricing levels when using segmented pricing, buyers usually
3
8. Why is PayPal a good idea for merchants?
Not only did PayPal revolutionize the online payment business model, they are now
9. What are the advantages of electronic money for online retailers?
Offering the option of electronic money for payment makes purchasing more
Discussion Questions
10. Price of an iPhone App Story: If you created a cool new app, which pricing
model would you use and why? Consider all the important pricing variables in
this chapter when answering.
Answers will vary, as this is an opinion-based question. However, whether students
11. Price of an iPhone App Story: What is the difference among the three versions
of Angry Birds (free, light, and full versions)? Do the product differences justify
the pricing strategies?
The free version of Angry Birds is actually a “freemium,” in which the company
12. Near perfect access to pricing information is a problem that airlines have faced
for years. How have airlines responded to this problem? Should Internet
businesses adopt similar strategies?
Even before the advent of the Internet, near perfect access to pricing information
4
13. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
▪ Shopping agents. Shopping agents such as PriceSCAN (www.pricescan.com)
facilitate consumer searches for low prices by displaying the results in a comparative
format. Slightly over 15% of Internet users visited shopping agents in July, 2002, an
increase of 6% from six months earlier—a positive trend, but still small usage among
Internet users. Since the results are listed in order with the lowest price first, outlets
that are not price competitive risk being left off of the first screen and might as well
be invisible.
▪ High price elasticity. Price elasticity refers to the variability of purchase behavior
5
competition and other factors emerge.
▪ Smaller price change increments. In one study, the smallest offline price change
14. Which pricing strategy would you use to introduce a new product for wireless
Web access? Why?
Given that wireless Web access is a relatively new and emerging technology,
15. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and
at a different price to a student?
Price discrimination, though common outside of the digital industry, is dangerously
risky on the Internet. Internet technologies make prices so transparent that price
16. As a buyer, how do you think price transparency affects your ability to develop
an appropriate bidding strategy for new products auctioned by companies
through eBay?
Educated buyers that utilize pricing agents, avatars, and newsgroups are likely to bid
6
17. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Ironically, auction sites such as eBay and Ubid often sell products at prices higher
18. Would you like to use your cell phone to pay for goods and services? Why or
why not?