Since the emergence of electronic commerce, the web has been used as a way for organizations to segment the market and enable price discrimination — i.e., offering different prices to individuals shopping online compared with individuals shopping offline. This has typically resulted in a situation in which consumers shopping online for books, CDs, and even cars pay a lower price than individuals shopping offline.
In one of our recent studies of the auto indudustry, we identified a mechanism that involves price discrimination within the online channel rather than between the online and offline channel. By examining the search process of consumers and specifically the use of online buying services (OBS, websites specifically focused on providing information) as part of the purchase process, we found three distinct clusters—price OBS, product OBS, and portals—which were associated with significant differences in the price paid. Individuals utilizing product OBS paid more than individuals utilizing price based websites or portals. We further found that underlying differences in search behavior were associated with consumer demographics.
What is the take away here? Obtaining information about the type of site a consumer is coming from may provide you with a way to price descriminate based on information—with those individuals who are likely to be more concerned with quaility information generally willing to pay a higher price.
The full paper associated with this post has been published in the Journal of Marketing.
Viswanathan, S., Kuruzovich, J., Gosain, S., and Agarwal, R. 2007. “Online Infomediaries and Price Discrimination: Evidence from the Automotive Retailing Sector,” Journal of Marketing 71(3) 89-107.
