Essay Sample on Change and the Internet - Deciding on Price Structure

The Internet is changing the way people conduct business and its use is becoming increasingly vital to the success of business entities. It is simultaneously influencing demand and cost structures, resulting in a radical transformation of existing market structures. Consequently, the appropriation of any value created has become more challenging for businesses (Dinerstein, Einav, Levin, & Sundaresan, 2018). Accompanying these changes of demand and cost structures has been an emphasis on Internet exchanges happening at lower prices than brick-and-mortar outlets. Partly, this perceived consequence of the extensive use of the Internet for e-commerce is based on the anticipation that distribution costs will decline and price information search by consumers and buyers will become easier and maybe free. In light of this, this paper seeks to discuss the changes that the Internet has caused and those that it may cause in the future on the price structure.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

Pricing is one of the primary marketing areas that the Internet has affected significantly. Undeniably, marketing pricing remains the price that consumers are willing to pay, based on considerations like firm, reputation, brand, and product. However, the Internet has brought various changes that determine how firms decide on their price structure. First, the Internet has led to the introduction of dynamic pricing shifting companies from the use of the fixed pricing strategy (Dinerstein et al., 2018). Database marketing and web-based technology have made this strategy easy to execute. Under dynamic pricing, firms can now set price structures differently based on segment differentiation, which automatically generates a different price for products or services depending on various decision rules or pre-set variables. Mainly, the Internet enables companies to recognize their customers, and then customize prices. For example, for a buyer who has previously purchased a product 10 times gets a discount. Conversely, a business may use a potential customer's IP address to offer a service or commodity at an introductory price. Additionally, dynamic pricing enables entities to set different prices when selling products or services in diverse geographic segments. In such a case, prices structures are related to circumstances in different regions, such as economic conditions and local competition.

The second effect the Internet has had on pricing is that today; there is a tendency for prices to converge at lower levels. Businesses have greater efficiency created by lower transaction costs and new organizational forms, which reduce the company's cost structure. Cost savings occur when a firm eliminates the need for brick and mortar assets, needs fewer employees, and when technology is utilized to reach and serve consumers. Consequently, greater efficiency enables companies to sell at lower prices. Similarly, pricing decisions are critical for businesses in the Internet age, as there is a customer perception that prices should be lower online than in conventional retail stores (Dinerstein et al., 2018). In particular, the Internet raises customer negotiation power. Today, consumers can easily find and compare prices online. They can use intelligent shopping agents and price comparison websites that give them price and comparisons on products with similar features and multiple suppliers. Hence, more businesses are lowering their prices as they focus on gaining market share and competitive advantage.

Third, the Internet has increased transparency in pricing as businesses strive to increase price knowledge among their customers. Consumers face an increased degree of risk and uncertainty when shopping online (Weisstein, Kukar-Kinney, & Monroe, 2016). With the ability to conduct price-search comparisons, buyers can find similar products elsewhere. In the case where loyal customers find a similar product for a lower price than the seller-provided price, they experience a feeling of deception and price unfairness. Consequently, they are more likely to reject the seller-provided price and instead purchase from a competitor. Hence, businesses are forced to provide consumers with transparent information concerning their prices, which forces them to include all the relevant features when deciding on the price structure (Weisstein, Kukar-Kinney, & Monroe, 2016). Moreover, any hidden charge may lead to a loss in business.

The Internet is turning into such a prevalent tool that every firm will be employing it in some way in the future. Nevertheless, although the above information suggests that prices are lower because of the Internet, it is possible that it will not necessarily force online firms to lower prices in the future. Customers will become less price-sensitive and more loyal to businesses as the level of quality information on a product improves. Moreover, although the price is an essential aspect in a consumer's purchasing decisions, other features, such as on-time delivery, customer support, shipping and handling, privacy policies, and ease of orders will rate more in making a purchasing decision. Additionally, in the future, companies may be forced to increase their prices as they seek to remain in business and earn a profit amidst extensive online marketing and advertising expenditures. This may further explain the inability of the companies to lower prices.

In summary, the Internet is changing the way people conduct business and its use is becoming increasingly vital to the success of business entities. In particular, the Internet has led to the introduction of dynamic pricing, has led to a tendency for prices to converge at lower levels, and has increased transparency in pricing as businesses strive to increase price knowledge among their customers. Nevertheless, although the above information suggests that prices are lower because of the Internet, it is possible that it will not necessarily force online firms to lower prices in the future.

References

Dinerstein, M., Einav, L., Levin, J., & Sundaresan, N. (2018). Consumer price search and platform design in internet commerce. American Economic Review, 108(7), 1820-59. Retrieved from https://www.nber.org/papers/w20415.pdf

Weisstein, F. L., Kukar-Kinney, M., & Monroe, K. B. (2016). Determinants of consumers' response to pay-what-you-want pricing strategy on the Internet. Journal of Business Research, 69(10), 4313-4320. http://dx.doi.org/10.1016/j.jbusres.2016.04.005