A Changing Pricing Environment

Pricing practices have changed significantly.At the turn of the 21st century, consumers had easy access
to credit, so by combining unique product formulations with enticing marketing campaigns,
many firms successfully traded consumers up to more expensive products and services. The onset
of the Great Recession—a recession more severe than previous recessions, which resulted in many
jobs lost and many businesses and consumers unable to receive loans due to their poorly leveraged
situations—changed things though.
A combination of environmentalism, renewed frugality, and concern about jobs and home values
forced many U.S. consumers to rethink how they spent their money. They replaced luxury purchases
with basics. They bought fewer accessories like jewelry, watches, and bags. They ate at home
more often and purchased espresso machines to make lattes in their kitchens instead of buying
them at expensive cafés. If they bought a new car at all, they downsized to smaller, more fuelefficient
models. They even cut back spending on hobbies and sports activities.4
Downward price pressure from a changing economic environment coincided with some longerterm
trends in the technological environment. For some years now, the Internet has been changing
how buyers and sellers interact.Here is a short list of how the Internet allows sellers to discriminate
between buyers, and buyers to discriminate between sellers.5
Buyers can:
• Get instant price comparisons from thousands of vendors. Customers can compare the
prices offered by multiple bookstores by just clicking mySimon.com. PriceSCAN.com lures
thousands of visitors a day, most of them corporate buyers. Intelligent shopping agents
(“bots”) take price comparison a step further and seek out products, prices, and reviews from
hundreds if not thousands of merchants.
• Name their price and have it met. On Priceline.com, the customer states the price he or she
wants to pay for an airline ticket, hotel, or rental car, and Priceline looks for any seller willing
to meet that price.6Volume-aggregating sites combine the orders of many customers and press
the supplier for a deeper discount.
• Get products free. Open Source, the free software movement that started with Linux, will
erode margins for just about any company creating software. The biggest challenge confronting
Microsoft, Oracle, IBM, and virtually every other major software producer is:How do
you compete with programs that can be had for free? “Marketing Insight: Giving It All Away”
describes how different firms have been successful with essentially free offerings.