The Unforgiving World of Retail Pricing

Two years ago I was booking a family vacation to London, pricing flats being offered through a single broker. The one we liked best was priced at 1,100 pounds for a week, but noticing that there seemed to be a number of vacancies, I sent an e-mail to the agent offering 950 pounds. Offer accepted.

Welcome to the new world of consumer pricing, where the list price is often just a starting point. The Internet helps us become expert comparison shoppers, able to negotiate from a position of strength. This puts an added burden on sellers to get their pricing strategy right in the first place, because they are likely to not get a second chance with info-rich shoppers.

I reflected on this state of affairs after reading James Surowiecki's excellent Wired piece Going, Going, Gone: Who Killed the Internet Auction. His thesis is that eBay and other online auction sites have slowly but surely lost their allure with customers over the last decade, in part because the novelty wore off. But the bigger reason is probably because the bargains we thought we were getting at auction can be matched today by doing a simple Google search, where we can view the wildly divergent prices offered by dozens of retailers for the same product.

Explains Harvard Business School historian Nancy Koehn:

"There's been a seismic shift in the way consumers deal with businesses. Consumers now know that prices are not something that you just have to say yes or no to. They know that they can play an active part in determining what they pay. Online auctions and what they represent played a big part in teaching these things to consumers, even consumers who've never bought anything on eBay."

So here's my question to you as crackerjack pricing strategists. What factors do you take into account today that you didn't 10 or even 5 years ago when pricing a product or service?

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(Photo by Flickr user jkbrooks85, CC 2.0)

Sean Silverthorne

Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.

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