Clever solutions for price differentiation in online retail

A few years ago, Amazon USA differentiated prices based on the search behavior of individual customers.
Customers noticed that a price fell when they deactivated cookies and rose again as soon as they reactivated the cookie.
This type of price differentiation was not accepted by customers.
So how can the strong development of technologies in recent years be used intelligently to differentiate prices?
With the development of e-commerce, new forms of price differentiation are emerging that take account of increasing market transparency.
Markets are becoming increasingly transparent thanks to new technologies such as price comparison providers (Expedia, Check24, etc.), creating new challenges for price differentiation.
New forms of price differentiation should therefore not allow a direct price comparison and still offer an incentive to buy.

Uncertainty about a product property

One solution is to leave the customer in the dark about at least one characteristic of the product at the time of purchase and thus offer an inferior product alternative.
The customer pays a lower price for this uncertainty compared to the original product and only learns the exact product characteristics after the purchase.
An example of this is blind booking by airlines, where the customer can choose a destination but only finds out the exact destination after booking.
This already works in a similar way with sneak previews at the cinema: the customer buys a cinema ticket at a discounted price because they only find out which film is being shown when they get to the cinema. Advantages for the provider:

1. Negative arbitrage effects are avoided, as customers allocate themselves to the different product variants based on their individual willingness to pay (e.g. a business traveler has no flexibility in his travel planning and will not use the cheaper blind booking offer)
2. Price differentiation is perceived as fair by customers
3. Fluctuating capacity utilization can be reduced

Use of e-coupons

Another solution is e-coupons, i.e. vouchers distributed via the Internet.
With the amendment of the German Rebate Act and the German Bonus Ordinance, e-coupons have also been able to be used in Germany for some years now.
Through the use of cookies, customer and purchase-related data is collected so that the customer can be sent e-coupons that correspond exactly to the customer’s interests and purchasing preferences.
The use of coupons has been established in the USA for decades.
Despite increasing transparency in the online market, e-coupons are a way of enforcing customer-specific prices that are perceived as fair by the customer.
Even if new technologies make it possible to offer customers a completely individual price online based on their search behavior, this is often perceived as unfair and leads to annoyance and uncertainty on the customer side, as in the example of Amazon.
The toy retailer mytoys.de, for example, uses e-coupons as part of its price differentiation.
After expanding its product range to include children’s clothing, customers who regularly purchased toys from mytoys.de received an e-coupon that gave them a discount on children’s clothing. Advantages for the provider:

1. Customer may buy additional products from a range from which they have not previously purchased
2. Price differentiation is accepted by the customer

Conclusion

There are various ways to respond to the increasing market transparency in online retail and still offer differentiated prices.
However, care must be taken to ensure that the pricing system does not become too complex.
Too many different prices often lead to a non-transparent and no longer comprehensible pricing system that loses sight of the customer.
Power BI supports the development and management of differentiated pricing systems.
Let us analyze together how your prices can be differentiated sensibly and pragmatically so that you can benefit from the opportunities offered by price differentiation.