Although, intuitively, we would think that price transparency enabled through the
Internet price comparison services such as Pricerunner (Figure 5.9) would lead to
common comparisons of price and the selection of the cheapest product, the reality
seems different. Pricing online is relatively inelastic. There are two main reasons for this,
first, pricing is only one variable – consumers also decide on suppliers according to other
aspects about the brand such as familiarity, trust and perceived service levels. Secondly,
consumers often display satisficing behaviour. The term ‘satisfice’ was coined by Herbert
Simon in 1957 when he said that people are only ‘rational enough’ and that they sus-
pend or relax their rationality if they feel it is no longer required. This is called ‘bounded
rationality’ by cognitive psychologists. In other words, although consumers may seek to
minimise some variable (such as price) when making a product or supplier selection,
most may not try too hard. Online, this is supported by research by Johnson et al.
(2004) who showed that by analysing panel data from over 10,000 Internet households
and three commodity-like products (books, compact discs (CDs) and air travel services)
the amount of online search is actually quite limited. On average, households visit only
1.2 book sites, 1.3 CD sites and 1.8 travel sites during a typical active month in each cat-
egory. Of course, these averages will reflect a range of behaviour. This is consistent with
earlier research quoted by Marn (2000) which suggested that only around 8% of active
online consumers are ‘aggressive price shoppers’. Furthermore, he notes that Internet
price bands have remained broad. Online booksellers’ prices varied by an average of 33%
and those of CD sellers by 25%.
One strategy for companies in the face of increased price transparency is to highlight
the other features of the brand, to reduce the emphasis on cost as a differentiator. In
October 2000, Revolutionmagazine reported a dispute between Abbey National and finan-
cial comparison site Moneysupermarket.com (www.moneysupermarket.com). The bank
had reportedly requested that several comparison sites including Moneysupermarket not
list them and a legal dispute ensued.
For business commodities, auctions on business-to-business exchanges can also have
a similar effect of driving down price. Purchase of some products that have not tradi-
tionally been thought of as commodities may become more price-sensitive. This process
is known as commoditisation. Examples of goods that are becoming commoditised
include electrical goods and cars.CHAPTER 5· THE INTERNET AND THE MARKETING MIX
Satisficing
behaviour
Consumers do not
behave entirely
rationally in product or
supplier selection. They
will compare
alternatives, but then
may make their choice
given imperfect
information.
Commoditisation
The process whereby
product selection
becomes more
dependent on price
than on differentiating
features, benefits and
value-added services.
Activity 5.3 Assessing price ranges on the Internet
Purpose
To illustrate the concept of price transparency.Activity
Visit a price comparison site such as Kelkoo (www.kelkoo.com) or Pricerunner
(www.pricerunner.com). Choose one of the products below and write down the range of
prices from lowest to highest. What is the percentage premium charged for a product by the
most expensive company?
Low-involvement purchase – CD or book.
Higher-involvement purchase – household appliance.
visit the
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