Shopping on the Internet

Shopping on the Internet

The web offers the best prices because many merchants compete for your business, right? Not necessarily so. And spyware is partly to blame.

Consider two cases: You own a store selling hardware. One of your customers, Viva, is extremely faithful: She has come to you for years; she wouldn't think of going anywhere else. Viva is also quite well off; she regularly buys expensive items and tends to buy quickly. Joan is a new customer. You know she has been to other hardware stores but so far she hasn't bought much from you. Joan is struggling with a large family, large mortgage, and small savings. Both come in on the same day to buy a hammer, which you normally sell for $20. What price do you offer each? Many people say you should give Viva a good price because of her loyalty. Others say her loyalty gives you room to make some profit. And she can certainly afford it. As for Joan, is she likely to become a steady customer? If she has been to other places, does she shop by price for everything? If you win her with good prices, might you convince her to stay? Or come back another time? Hardware stores do not go through this analysis: a $20 hammer is priced at $20 today, tomorrow, and next week, for everyone, unless it's on sale.

Not true online. Remember, online you do not see the price on the shelf; you see only the price quoted to you on the page showing the hammer. Unless someone sitting at a nearby computer is looking at the same hammers, you wouldn't know if someone else got a price offer other than $20.

According to a study done by Turow et al. [TUR05] of the Annenberg Public Policy Center of the University of Pennsylvania School of Communications, price discrimination occurs and is likely to expand as merchants gather more information about us. The most widely cited example is Amazon.com, which priced a DVD at 30 percent, 35 percent, and 40 percent off list price concurrently to different customers. One customer reported deleting his Amazon.com tracking cookie and having the price on the web site drop from $26.00 to $22.00 because the web site thought he was a new customer instead of a returning customer. Apparently customer loyalty is worth less than finding a new target.

The Turow study involved an interview of 1,500 U.S. adults on web pricing and buying issues. Among the significant findings were these:

53 percent correctly thought most online merchants did not give them the right to correct incorrect information obtained about them.

50 percent correctly thought most online merchants did not give them the chance to erase information collected about them.