IMS Newsflash -Dynamic Pricing
back to the first time you bought something on an auction site and try to remember how it
felt. It was pretty fun, wasn't it? Now businesses are getting into the action as auctions
play a greater role in business-to-business commerce.
Today's auction sites come as close to
one-to-one online marketing as you can get, but for some companies, the marketing risks of
selling through auctions may outweigh the advantages. A company's customers have a wide
range of purchase criteria - some customers are very price sensitive, while other
customers emphasize non-price criteria. One way to serve both segments is to add a link on
your site that takes the price-conscious customers to an auction site where they can bid
for products. This allows you to separate customers into two broad categories: low-price
shoppers and total-value shoppers.
Many people initially thought online
auctions would be used by companies mainly to sell off surplus or out-of-date products;
however, auctions have had a tremendous impact on the way corporations do business. So
much so that Forrester Research predicts about 50 percent of online business in 2002 will
be conducted via auctions.
Most of the talk about "dynamic
pricing" has centered on web-based auctions where the buyer determines the price
(within limits set by the seller). However, the use of exchanges - similar to stock
exchanges - that compare the bids of multiple buyers to the available products from
multiple sellers can help buyers find the absolute lowest price for a particular product.
Typically, dynamic pricing works well
when the features and quality of the product are well known to the customer, and the main
variables are availability and price. Take, for instance, the stock market. Each share of
IBM common stock is just like all other shares of IBM common stock. The auction-style
bidding that takes place at the stock exchange matches bidders and sellers who know what
the "product" is.
Manufacturers are starting to
experiment with conducting their own private auctions to accomplish several marketing
goals. In addition, another type of auction - reverse auctions - allows a company to
publicize its need for products of a particular type, quality, and delivery schedule, then
receive bids from potential vendors.
Corporations have been
rather slow to adopt auctions as a way to make purchases, mostly because they have
established procedures for certifying new vendors. And they also have concerns about
quality, warranties, and delivery times. The implications for marketers looking for ways
to differentiate their products can be dramatic. Why should a company participate in
auctions where they don't have control over the price?
There are a number of benefits for a
company selling products online within an auction format:
Reaching new customers who are price
Helping dealers move used and
Providing your best customers with a
private market for your products.
Tapping into a customer base looking
for low prices over non-price features.
Targeting unsuccessful bidders as
new sales leads.
However, there are a few potential
pitfalls as well:
Diminishing the image of
Reducing margins on products sold
Extra strain on your order
fulfillment department or partner.
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It does appear that the dynamic
pricing model, whether it's auction or exchanges, will have a significant impact on the
way companies sell and distribute goods. In the near future, it'll be important to
integrate outsourced or company -operated auction systems into both marketing and
procurement systems. There are a number of premier auction software products and services
that IMS uses to add auction functionality to client's sites or enable participation in
If you have a committee studying how
to implement enterprise resource planning (ERP), it should expand its planning to include
dynamic pricing systems. While you consider using dynamic pricing in private auctions for
certain customers, keep in mind about the legal implications of giving special prices only
to certain customers over others.
In the near term, you may want to start planning to participate in
online auctions in a limited way to gain experience with this form of selling. And while
you're exploring dynamic pricing models, hop onto one of the auction sites and experience
making some of your personal purchases through auctions. It's fun, exciting, and can
sometimes save you a chunk of money. ... IMS webmaster Mike
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