Companies will need to learn how to incorporate customer driven pricing models, according to Greenfield Knowledge onDemand.

Westport, December 15, 2000 –
A recent report by Greenfield Knowledge onDemand analyzes recent trends that have seen Internet merchants incorporate customer-driven pricing practices in order to sell merchandise. The past three years have seen a proliferation of Web sites that allow customers to affect the prices of items. Spurred by the wildly successful eBay and the excitement caused by Pricelines Name Your Own Price" campaign, online retailers have looked to customer-driven pricing as a means to stimulate customer involvement. Overall, auctions and other customer driven pricing sites have gained in popularity. Some statistics forecast spending at auctions and related sites to grow to $19 billion by 2003. Even though some sites have had success with customer driven pricing strategies, it is important for any company considering implementing a customer-based solution to analyze their products and choose a solution that matches their marketing strategies.

It is not difficult to understand why consumers may be attracted to sites where they can exert some influence on the outcome of a sale. Still, they are wary of participating in a process where the final outcome is largely undetermined. As a result, merchants need to choose a customer driven pricing method where the customer perceives an opportunity for success. According to Greenfield Knowledge onDemand analyst Toufic Batouli, Customer-driven pricing is not just meant to spur traffic to a web site. If customers dont see a way for it to benefit them in their purchasing decisions, then they probably will not want to participate. With the high level of competition in the marketplace, online merchants need to choose a method that will make good business sense."

Online auctions account for the majority of the growth in customer-driven pricing practices on the Internet. Auctions are methods best used for allocating scarce goods and primarily should be used in situations where the seller has more strength than the buyer. Most of commerce, however, does not share this characteristic. In order to find a dynamic pricing solution, companies may need to look to other customer-driven pricing methods. These processes can be as simple as a one-on-one negotiation between a customer and a seller, or can be as complicated as financial trading institutions such as the NYSE. Each form of customer driven pricing lends itself to a different dynamic between buyers and sellers.

According to Mr. Batouli, For the most part, the concept of customer driven pricing was forgotten with the Industrial revolution and the proliferation of mass produced items. Merchants could better forecast their profits based on the number of sales. While this remains a good measure for a company, they are going to have to do more to attract todays savvy customers. The Internet has empowered buyers and merchants are going to have to adapt to the increasingly demanding marketplace." For example, customers are just now being exposed to reverse auction sites where they can place a request for an item and wait for merchants to compete with each other for the customers business.

While the industrial age provided manufacturers with an edge, the Internet revolution has brought consumers back onto even ground. As a result, the market is headed to a time of increased complexity. Since the market for the most part has moved away from customer driven pricing over the last hundred years, it will be necessary to examine how appropriate certain methods are for selling products. Choosing the right method can boost consumer interest, but choosing the wrong one will only lead to customers with unfulfilled expectations.

For more information on this study, please contact Charles Hamilton, Greenfield Knowledge onDemand at (203) 429-0278.