In theory, the price a merchant should charge is the price that you are willing to pay. If you are willing to pay more than someone else, the merchant would make more profit.
In practice, merchants (in the US) set a price and charge everyone the same (since we dont negotiate most purchases). This type of pricing is easy to do but leaves an "economic surplus" on the table, unrealized.
Another way the information revolution is changing commerce is that it is allowing merchants to start capturing some of that surplus. Using information, online merchants are starting to focus on how they can offer everyone an individually tailored price/offer. This is an amazing change even though the consumer is not generally aware that it is happening.
Online Retailers Are Watching You
Sites Take Shopper-Tracking To New Level to Customize Deals in Holiday Season
November 28, 2006
Wall Street Journal
Browser beware: While they are loath to reveal which attributes affect which promotions -- both in response to concerns about privacy and intense competition among online retailers -- Internet merchants are picking up on a shopper's digital trail and mining the wealth of information they collect about shoppers to tailor their promotional offers with ever-greater precision.
The new targeting strategies are part of retailers' efforts to boost sales by better matching deals with customers most likely to respond as this season's shopping race begins. Since the start of November, Internet retail sales this season are up 23%, according to comScore Networks Inc., thanks to aggressive marketing and shoppers' growing ease with buying more, and more expensive, items online.
As more shoppers migrate online, retailers are finding new ways to track them. Unlike shoppers who head to the mall, online shoppers' intentions and tastes are stored and saved. That presents online retailers from mom-and-pop shops to industry leaders like Amazon.com Inc. with a vast amount of data to tap to better hone offers and display merchandise. This type of customizing earlier centered mostly on product recommendations, with sites displaying items that other shoppers who have purchased that particular item also have bought. But technology now is taking that to a new level, allowing similar customization without the shopper even logging in.
While sophisticated promotional targeting has been possible for years, it is becoming more widely available, with some analysts estimating that up to half of online retailers are using it. With new e-commerce platforms, companies are turning to it to stay competitive. Retailers say the promotions are more based on science than psychology; they choose which offers to target to whom based on real-time testing of what is most effective. The offers that generate the most sales stick.
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Online merchants insist the data are only used internally and are not shared with other sites. They also say much of the information remains anonymous and is not necessarily pegged to an individual shopper. But the new practices are alarming some privacy advocates, who say retailers should better notify their customers that their actions are being tracked. "The public is totally unaware," says Jeffrey Chester, executive director of the Center for Digital Democracy, a privacy watchdog based in Washington, D.C., that is calling upon the Federal Trade Commission to investigate online-marketing practices.
Retailers that are reluctant to target individual customers are using Web data to tweak their site-wide promotions based on factors like peak traffic times. Outdoor retailer Sierra Trading Post Inc. will refresh promotions like site-wide sales or discounts on skis and snowshoes during peak traffic periods, says Doug Williams, director of e-commerce for the company, which tend to be earlier in the week.
But a growing number of retailers now believe there is a place for tactful and targeted offers on the shopping sites. Kiyonna Clothing Inc., an online fashion site for plus-size women, shows different customers different offers based on real-time information about their sessions. For customers who appear to be on the fence about a purchase (i.e., they have gone back and forth between the checkout page) the site often generates a free shipping offer valid only if the shopper completes the sale that day.
