January 01, 2000

Article at PC Computing

Name Your Price

Suppose you were to haggle with the grocery clerk over every item in your cart. "Pop Tarts for $2.26? Two bucks or no deal. Gallon of milk for $3.46? Give ya $2.50." Not likely.

But on the Web, things like auctions, group buying sites, reverse auctions, and shopping agents make prices dynamic. You decide what to pay. Virtually all retailers, now accustomed to fixed prices, will have to respond to this simple fact sooner or later. Sooner might be wiser: Gomez Advisors, an e-commerce research firm, estimates that by 2001, $15.5 billion will trade hands in auctions alone, up from $4.5 billion in 1999, and that's not including business-to-business transactions.

But this doesn't mean you'll be bargaining with clerks, says Sue Rothberg, a Gomez analyst. "The idea that everyone is going to want to haggle over a price is just insane. You will never see that in the mainstream." Most industry watchers agree with Rothberg, though Sanjay Bajaj, a vice president at i-Escrow, says he's keeping his mind open. "You never know," he says. "More than 10 million people are now engaged in online bidding, so the taboo around bidding for an item is no longer as strong as it was two years ago." And Anne Perlman, president and CEO of the auction software and services firm Moai Technologies, says she's bargained with clerks all her life. "I decided at an early age it was OK to haggle. I've done it for years."

eBay spokesperson Kevin Pursglove says dynamic pricing is an opportunity, not a threat, for retailers. "Too often we look at our economy in black and white, winners and losers. But the reality is that new opportunities are created." Videos, he notes, were at first feared by movie studios.

Maybe insanity is contagious.

Buy in Bulk

Salim Teja, vice president of strategic development for group buying site Accompany, says his firm is working with retailers to bring dynamic pricing into stores. One possibility, he says, is kiosks. If you like a product that you find on the shelves but don't need right away, you can use a kiosk to join a group buying cycle in progress online; when enough buyers sign up, you all receive a volume discount. It would mean waiting a few days for the cycle to run its course and for the product to be shipped to your home, but you could save money.

"In stores, you're used to seeing a regular price, a sale price, and a clearance price," says i-Escrow's Bajaj. "But you'll probably start to see an auction price as well." The Sharper Image, for example, hosts its own auction site to sell both surplus and popular merchandise. The company advertises the site in its stores and catalogs. According to Meredith Medland, director of global Internet marketing for the Sharper Image, auction sales exceeded $25 million in 1999, accounting for 10 percent of total revenue.

Dynamic pricing could also lead to more upscale stores and service. After all, why leave home to face surly clerks, set prices, and traffic nightmares when you can order everything off the Net? "People will pay more for customer service," says Gomez's Rothberg. Retailers will have to make the shopping experience more enjoyable and entertaining, she says, noting the way Barnes & Noble and Borders use cafes and live jazz to give people a good reason to hang around in the store. Accompany's Teja points to REI's adventure store, where you can ride bikes on in-store trails and try out climbing gear on practice walls.

Price Fixing

But not everyone buys into the beneficial effect of dynamic pricing. "Some things sold in auctions today don't belong there," says Sharon Greenspan, a spokesperson for online retailer Amazon.com. Does it really make sense, she asks, to bid on a jar of peanut butter? And with group buying, do people really want to wait three days for a cycle to finish? In late September, Amazon.com launched zShops, where retailers of all sizes can set up shop on the Net for a low monthly price. "With zShops," says Green span, "we've taken out dynamic pricing." zShopkeepers can't auction their wares, but, of course, Amazon.com itself has auctions.

IDC analyst Barry Parr says retailers could find tricky and deceptive ways around the dynamic-pricing challenge. For example, the "slightly different model" tactic could become more commonplace. Manufacturers that use this tried-and-true strategy offer slightly different models with different names. That's why mattress shops, for example, can guarantee the lowest prices no one else carries their exact model. So retailers might lean on the manufacturer of, say, handheld PCs to offer one model through traditional retailers, another through online retailers, and another through group buying sites. That way it would be difficult for shoppers and their software agents to make precise comparisons.

But such schemes won't necessarily work in the new economy. "The Internet is more pervasive," Parr says. "Retailers will have to choose between their channels and their business." He predicts growing stratification, with retailers eventually stocking fewer Net-friendly items and e-tailers giving up on bigger, hard-to-ship merchandise.

Bend, but Don't Go Broke

Until retailers become more flexible, you have two options for getting the best deal on the product you want: Try it out in a store before ordering it online, or research it online before buying it at the mall. Such strategies are becoming increasingly common, says Parr, who admits to doing the same thing himself.

And if your heart is set on haggling over a gallon of milk, good news: Last November, an outfit called WebHouse Club (webhouse.priceline.com), in association with Priceline.com, began offering name-your-price grocery shopping. The service, starting in the New York area, will go nationwide sometime this year.