Analysis: online retailers use an assortment of tactics and tricks to entice us to add products to our shopping baskets
Pricing is the most important aspect of any business offering because it's the only element that brings in revenue. The digital era has transformed pricing, making it a wonderland of deals, flash sales and payday bargains. We Irish have embraced it all, with 63% of us buying consumer goods online and 49% of us buying food online at least once a month. So how do technology and online companies know how to place the right offer, at the right time, and so smoothly that you are often willing to pay in advance, or spend more than you planned, to bag that so-called deal?
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From RTÉ Archives, a RTÉ News report by Don McManus on the after-Christmas sales on Dublin's Henry Street in 1971
A little nudge
Economists have observed that giving citizens or consumers the right reminder or incentive can motivate them into action and online retailers have developed a whole new tool kit based on the idea of a succession of nudges. Email and social media are used to push out targeted offers and discounts. Messages such as "selling fast" or "only 2 rooms left" increase the sense of urgency. The ability to target by age, location and interests, and to reach in-market audiences – people who are actively searching in the target category - allows offers and discounts to be served only to these warm prospects. One of the most powerful tools is remarketing, which serves up an ad for an item recently viewed, the next time the searcher is online.
Dynamic pricing
Algorithms can analyse customers, demand history and competition to suggest how prices can be changed. Widely used in the travel and tourism industries, dynamic pricing allows online firms to vary prices as demand changes or as the event or departure date gets closer.
Dynamic or surge pricing also helps to sell out capacity while maximising revenue. Suppose you book an airline seat months in advance at a bargain price. With weeks to go, you find you have to cancel. The airline gets to keep most of your ticket price and then sell the seat to another customer, often at a higher fare. Online businesses can also discriminate between customers, offering better deals to the customers considered more important and charging steep prices to those who have left booking to the last minute.
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CNBC explainer on how airlines price tickets
Bait and switch
One of the oldest tactics in pricing practice, the bait and switch approach is very effective online. Online sellers can offer a wide range of prices across any category, to make it inviting to prospects to come in and browse. Once engaged, customers often find that the cheapest prices are for the less attractive options, and switch to more realistic choices. At this point, the seller has the chance to intervene by sending a small discount to help to close the sale, or offering more options like car hire or travel insurance alongside the hotel booking deal. What started out looking like a good deal, now involves paying more in advance or spending more on bundled extras.
The name of the game is data
Web sellers can observe online behavioural data and make price adjustments in real time. For instance, Amazon changes thousands of prices every ten minutes. Most changes are small discounts, but they can legitimately be called "sale" prices. This pricing flexibility is hard to match on the high street.
Online firms have also created special events such as Black Friday and Amazon Prime Day. By offering attractive discounts, the seller draws in substantial revenue, often at a low point in the sales cycle. Suppliers bidding to be listed for business must be flexible on price too, leading to an era of uncertain profits for many industries.
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From RTÉ 1's Nine News, retailers question the benefits of Black Friday sales and special offers
The free model
From the early days of the internet, service providers offered free access to services and disrupted the rules of intellectual property. Free access allows the seller to stitch in extra costs such as in-app or in-game purchases, or a charge for access to a higher level of service. The free model allows the user base to grow quickly and benefit from economies of scale. Users benefit from network effects because the benefits and range of interactions for users grows substantially as a platform grows its user base.
Who gains?
While buyers perceive the internet to have ushered in an era of better value and choice, they are often unaware of the hidden costs. Irish consumers are amongst the top three countries globally for per capita spending online. More than half of us shop with international as well as Irish based websites, and over half of our spending is with online sellers based outside of Ireland, but only 30% of smaller firms in Ireland having an online site. The practice of "showrooming", where customers view products in the store but then purchase online, has obvious consequences for the vibrancy and profitability of the local high street.
The onset of online retailing has introduced a whole new tier of intermediaries: online platforms, price comparison sites, booking engines, social influencers and customer reviews, all providing a mass of information for the buyer to absorb. The lower costs of the remote warehouses serving our needs are reflected in lower wages for their employees and the growth on of the gig economy.
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From RTÉ Radio 1's The Business, Eoghan McLaughin looks at the entitlements of workers who are answerable to an app like Uber or Delveroo rather than a human boss
However, the environmental impact of individual deliveries and layers of packaging is often forgotten in the ease of the click-to-buy model. The future may see a more transparent and regulated approach to online retail and shoppers may find that the introduction of carbon pricing causes them to take a more measured approach in evaluating the real value of the deal.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
