A01 chaf6542 06 se fm indd

1

 

Increased price transparency and its implications on differential pricing

Quelch and Klein (1996) describe two contradictory effects of the Internet on price that are 

related to price transparency. First, a supplier can use the technology for differential pricing, 

for example customers in different countries. However, if precautions are not taken about 

price, the customers may be able to quickly find out about the price discrimination and they 

will object to it. So, customer knowledge of pricing is enhanced through the Internet. This 

is particularly the case for standardised goods sold through online retailers. Not only can 

customers visit sites of rival suppliers, they can visit sites of  price-  comparison engines. It is 

difficult to retain price differentials if all customers are aware of these differences. Currently, 

this is probably not the case. However, research quoted by Baker et al. (2001) suggests that 

only around 8% of active online consumers are ‘aggressive price shoppers’. Furthermore, 

they note that Internet price brands have remained quite broad. Online booksellers’ prices 

varied by an average of 33% and CD sellers’ by 25%.

There appear to be 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