Business Ethos Blog

Did You Get the Best Deal Online?

 Dr. David Mielke is the Retired Dean of the College of Business at Eastern Michigan University

I think there is an assumption that when you shop online that you are getting the best prices.  The rapid growth of online sales is based not only the ability to comparison shop, but an expectation that the prices are low because the company can avoid the costs of a brick and mortar store.  We have heard a lot about the problems of Best Buy—that people go to their stores, find the product they want and then buy online from Amazon because prices are lower.  However, the Wall Street Journal recently did a study of online prices and found that the prices for a specific product from a company could vary.  In other words, some people get better prices online than others.  Is this the “Right Thing to do?”  Should companies be able to discriminate between customers and charge different prices?

Some background information:

1.  The Wall Street Journal looked at prices for a stapler offered by Staples online.  Some customers saw a price of $15.79 and others saw a price of $14.29.

2.  The Journal’s test also showed that areas with the discounted prices had a higher average income.

3.  The Journal tested to see whether price was tied to different characteristics including population, local income, proximity to a Staples’ store, proximity to a competitor’s store, race and other demographic factors.  By far the strongest correlation involved the distance to a competitor’s store based on zip code.

4.  Using geography as a pricing tool can reinforce patterns that e-commerce had promised to erase—that prices that are higher in areas with less competition, including rural or poor areas.  This practice diminishes the internet’s role as an equalizer.

5.  Availability of products can also be tailored based on geography.  Discover, the credit card company, showed a prominent offer for their new “it” card to computers connecting in Denver, Kansas City and Dallas, but computers connecting in Scranton, PA, Kingsport, Tenn and LA did not see the offer.  Capitol One showed different credit cards available based on geography.

6.  Some hotels are offering lower rates to those who use their apps on mobile devices.

7.  Lowes offers a refrigerator for $449 in Chicago, LA and Virginia, but at $499 in seven other cities.

8.  Offering different prices to different people is legal, with exceptions based on race discrimination.

9.  Staples and others explain the pricing differences on a variety of factors such as rent, labor, distribution and other costs—no different than their on-ground stores having different prices at different locations.

Is this differential pricing the “Right Thing to do?”

 Yes, it is.  Think about the differential pricing we see every day at gas stations, movie tickets for seniors and in particular for airline tickets.  People on a plane have several different prices based on the timing of their purchase.  What we are seeing is a growing sophistication of companies selling on the internet.  Many sites are using dynamic pricing—switching prices at lightning speed in response to competitors pricing.  Websites are adopting techniques to capture information about visitors to their sites, in real time, and then delivering versions of the web to different people.  Prices change, products get swapped out and wording is modified.  Unfortunately, there is no way you can tell if you are getting the best price.  So the next time you shop online, remember, you may not be getting the best price.