Is the internet the great price equalizer or anything but?

Source: Google Shopping
Oct 11, 2021

A new university study finds that, while the general belief is that online comparison shopping helps you find the lowest prices, it may not be so if you’re browsing from the wrong zip code.

The study found:

  • Online retailers exhibit substantially less uniform pricing than offline retailers; 
  • Online price differentiation across competing chains in narrow geographies was also found to be greater than offline retailers.

Researchers at MIT Sloan Business School and IESE Business School tracked 88 items at online grocers, including Amazon Fresh and Walmart Grocery, across 30 zip codes and then compared the prices to physical stores.

In one study from early 2019, a 12-pack of Coca-Cola sold by Amazon Fresh cost $6.99 for residents of a zip code in Manhattan’s Upper West Side and Harlem versus $4.99 in Cambridge, MA.

Online prices were also found to often change within a few hours. Amazon was found to respond to nearly three-quarters of Walmart’s price changes, often within hours.

The study further found greater price differences for the same 12-pack of Coca-Cola from different online grocers than at physical stores across an area. “This is surprising because a consumer can easily check competitors’ prices, which you would think would lead to greater transparency and convergence of prices. Yet, this only happens occasionally,” said MIT professor Roberto Rigobon in a statement.

Online grocers are taking advantage of algorithm pricing that continually adjusts prices based on factors like availability, pricing at competitors and individual shopping behavior. Online grocers can also change prices digitally much easier than physical grocers that must switch out price tags on store shelves. The price adjustments were found to be less related to demographics, such as higher prices landing in wealthier zip codes, but to the sensitivity of consumers to prices.

Researchers said consumers are aware that algorithmic pricing influences quoted prices for airline tickets and ride shares, but that they don’t expect such variable or dynamic pricing for products such as groceries. “Online retailers are taking advantage of our ignorance, and it’s up to consumers to stay alert if they care about getting the lowest price,” said Prof. Rigobon.

DISCUSSION QUESTIONS: Is being able to tailor a wide variety of algorithm-driven prices to consumers online beneficial for retailers? Will consumers get used to variable pricing online or do you see the potential for a backlash?

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"The internet has the potential to be the great price equalizer, but it takes more time than many consumers are willing to spend to find the 'real' best price."

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13 Comments on "Is the internet the great price equalizer or anything but?"

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Jennifer Bartashus

Algorithm-driven price adjustments could lead to a race to the bottom. Automated price matching works only as long as prices remain rational and it provides a value to customers. Otherwise, the scenario can play out where one retailer drops a price, others automatically follow suit, then the price goes lower and lower in an attempt to keep a price gap with competitors. The potential danger with dynamic pricing is that it can be good for retailers only up until the point consumers feel taken advantage of. And once customers feel that way, it will be hard to keep their loyalty.

Neil Saunders

In grocery, online price files are often linked to the price files of individual stores as that’s where products are most often picked and then checked-out. In turn, prices in those stores reflect local competition, labor costs and so forth. Given that a consumer in Manhattan isn’t likely to change their location to Phoenix for the purposes of price comparison, most of this goes unnoticed. What’s more of a problem is when prices online are different from the local store a consumer shops. Although they have become better, Target is a devil for this – the prices online and on their app often don’t match the shelf-edge label. They will always refund the difference, but it’s a niggle!

Suresh Chaganti

Retailers have a lot of power to discriminate on pricing – and it is a legal grey area. Are consumers who use Safari browsers and Apple devices less price-sensitive? Retailers don’t need to guess. They have the data, they can model it and test it out. Pricing based on affluence of zip codes is definitely possible. Can you show only premium bundles for certain types of users? Most certainly.

There are a number of ways that retailers can discriminate pricing and availability. Knowledgeable consumers use incognito browsing mode to ensure they are not being discriminated. It is largely left to retailers to decide how much they want to push the discriminatory pricing – it may not be illegal, but it borders on being unethical.

Jeff Weidauer

The internet has the potential to be the great price equalizer, but it takes more time than many consumers are willing to spend to find the “real” best price.

Bob Amster

“The real price” may become whatever the local market and season determine it should be…

Gene Detroyer

Without dynamic pricing, retailers have been adjusting prices by neighborhood and competition for years. Though it has been limited to high profile items.

Now we are seeing dynamic pricing abilities online, just like hotels and airlines. The difference is the massiveness of the job to be done. As they move more and more toward dynamic pricing, the algorithms will improve. It is just a matter of time. In terms of current magnitude, consider the algorithms that are used on Wall Street.

Will it be beneficial to the retailers? Absolutely. It will eventually include analysis and execution of every aspect of product sales to go from buying to selling, at the optimum pricing. Yes, and eventually, it will go to dynamic pricing on the store shelves itself, as the investment in the system that can easily change the shelf price becomes less and less expensive.

Will there be a backlash? No more than the backlash on pricing systems for hotels and airlines.

David Spear

Shoppers are savvy and know the variability of online pricing. In a way, it’s kind of expected. Take for example airline ticket pricing. It’s highly variable, with many algorithm-driven factors. Consumers have been conditioned and fully expect to find great deals and/or surprise high fares depending on a myriad of issues. Does this benchmark translate 100 percent to comparing the price of eggs online at a number of different retailers? Not completely, but I’d say “yes” to about 70 percent of this hypothesis. The generational cohorts of Millennials and Gen Zs with increasing purchasing power are fully digital born and don’t blink at how digital has affected the nature and frequency of pricing.

Lisa Goller

Pricing intelligence is getting more sophisticated – and essential – as e-commerce booms worldwide.

Retailers can benefit from continuously tailoring online prices, as 50 million price changes occur online every day. To navigate market fluctuations, more retailers trust pricing insights to adapt to real-time, global elasticity of demand. Retailers’ pricing tweaks can help them stay competitive and drive e-commerce growth.

Bob Amster

Dynamic pricing can be a boon for sellers without punishing buyers. Online sites can simply state that prices may vary by location.

Brandon Rael

As the customer navigates both digital and physical shopping channels, they are ultimately looking for the best products and the best value. Pricing optimization as a strategy has gained momentum, as it enables retailers and brands to shift to meet the changing demands and maximize profitability and gross margins.

However dynamic pricing also has its downsides. While it will keep the prices competitive online and in-store, it could potentially create confusion with customers while deteriorating the margins. Pricing as a loyalty strategy could ultimately be a race to the bottom. There are more fundamental aspects that have to be considered, including assortments, quality, customer service, and meeting your commitments.

Kai Clarke

Comparing 12-packs of Cola at online grocery retailers is a poor example of online strengths at best. Most grocers don’t compete online, and the pricing reflecting in these examples doesn’t reflect real-world examples (like different container recycle prices for different regions), or pricing models for different retail classes (ELP for retailers like Walmart vs. coupons for most other grocers). Using these as a benchmark just distorts pricing comparisons and the strength of online shopping.

Rachelle King

Algorithmic-driven prices can truly transform ecommerce experience for consumers but currently, it only benefits retailers.

While consumers can certainly compare prices and shop around, the time value of money saved in doing so, is often not worth it.

Very few consumers are aware of the algorithms, so, retailers indeed have the advantage. Today.

As ecommerce continues at double digit growth, it’s likely retailers may course correct themselves as more options to buy divide dollars and variable pricing challenges patience of consumers.

Kenneth Leung

It is a great price equalizer in theory, but in practice it depends on the product and the sophistication of the retailer and consumer. I would say to be more exact the Internet allows the knowledge of pricing to be democratized, but whether consumers or retailers can act on the knowledge is a different story. Personalization, geo-location data, even platform data allows retailers to charge different prices at different times to different customers, making the ability to take advantage of price differences difficult for shoppers.

"The internet has the potential to be the great price equalizer, but it takes more time than many consumers are willing to spend to find the 'real' best price."

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