2 Downward pressure on price
Price transparency is one reason for downward pressure on price. The Internet also tends
to drive down prices since Internet-only retailers which do not have a physical presence
do not have the overhead of operating stores and a retailer distribution network. This
means that online companies can offer lower prices than offline rivals. This phenome-
non is marked in the banking sector where many banks have set up online companies
offering better rates of interest on savings products.
A further reason for downward pressure on price is that companies looking to com-
pete online may discount online prices. For example, easyJet discounted online prices in
an effort to meet its growth objectives of online revenue contribution. Such discounts
are possible since there is a lower overhead of processing a customer transaction online
than for phone transactions. Note that there may be a danger in channel conflicts result-
ing from this approach.
Similarly, to acquire customers, online booksellers may decide to offer a discount of
50% on the top 25 best-selling books in each category, for which no profit is made, but
offer a smaller discount on less popular books to give a profit margin.
Diamantopoulos and Matthews (1993) suggest there are two aspects of competition
that affect an organisation’s pricing. The first is the structure of the market – the greater
the number of competitors and the visibility of their prices the nearer the market is to
being a perfect market. The implication of a perfect market is that an organisation will
be less able to control prices, but must respond to competitors’ pricing strategies. It is
clear that since the Internet is a global phenomenon and, as we have seen, it facilitatesPRICEFigure 5.9 Pricerunner (www.pricerunner.com)Perfect market
An efficient market
where there are an
infinite number of
suppliers and buyers
and complete price
transparency.