Competition in online retailing

Article

Fisher, M., Gallino, S., & Li, J. (2017). Competition-based dynamic pricing in online retailing: A             methodology validated with field experiments. Management Science.

Summary

Fisher, Dallino & Li (2017) have conducted field research to assess the different pricing strategies by online retailers responding to consumer choices. When a dynamic competition policy based on pricing is incorporated by online retailers, they are confronted by questions like should there be necessarily a response to the competition? Which competitors should be responded to? How aggressive the response should be? Prices of which products should be reduced? To respond to these questions, an unbiased approach is use which helps measuring price elasticity. This also helps to make a correct estimate of how much important it is to respond to the competitor. Sometimes, online retailers may decide not to respond to a price decrease by certain online retailers because of their less significance and minimal market presence. An empirical model is used to capture consumer choices. Field experiments are conducted in order to know consumer response to certain prices by using randomized prices. All these measures have helped in the development of a best-response pricing strategy which was tested with further experiments and helped increase the sales of a range of products by 11 percent. The model used consumer choices, competitor’s actions and supply parameters in different combinations to yield desired results. The research also suggested that price transparency by different online retailers is of utmost importance for the consumers. Online retailers may even use price transparency by different other retailers to devise their own pricing strategies. The level of demand of a certain product is also an indicator of either to increase or decrease the price of a certain product and hence reach a best price. Consumers may also use different price comparison websites to decide about what is the best price for a product of their choice.

Review

This article is of interest to me because it relates to many topics that we have covered in this course. The first topic that I could related to the course is about competition that exists in the consumer market. The competition is not limited to the offline world but also extends to the online world. As we know that Walmart, Amazon, Target and other retailers have also started their online sales and therefore, need to devise strategies that would help them beat their competitors. They may do so by effectively using a combination of the factors discussed in the article and hence reaching a dynamic pricing strategy that helps in beating the competitors and reaching a best market that responds to consumer needs.

Another topic from the course that can be related to this article is Consumer choices and the response of businesses to these choices. When it comes to traditional products, consumers may have specific product and price expectations (Caputo, Sacchi & Lagoudakis, 2017). The same can be true for many other products. Businesses, therefore, may need to have look for pricing strategies that have the capacity to respond to consumer choices related to both, special or traditional products as well other general products. The article has emphasized on the importance of studying consumer choices and responding accurately to these choices. In online retailing, consumer can visit price comparison websites and price may be one of the decisive factor in making a purchasing decision. It is thus important to set the best possible choice for a product.

Supply and demand has also been established as an important factor when deciding the best price of a product according to the article. We also studied in the course that supply and demand is an important aspect of a business. Businesses have to conduct market research to know about the demand of certain products and then setting a limit to its supply. An accurate balance between the supply and demand is important to respond to consumer needs. Supply and demand may also play an important role is setting the price of a product. Online retailing also rely on an accurate assessment of the demands of a product because they might have limited space to store products before they can be shipped off to online buyers. If a product is stored for more than the predicted time, it may have extra storage costs and may not end up earning a profit which is never desired by an organization.