Pricing and the Internet: Frictionless Commerce or Pricer s Paradise?

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1 Pergamon PII: S (02) European Management Journal Vol. 20, No. 6, pp , Elsevier Science Ltd. All rights reserved. Printed in Great Britain /02 $ Pricing and the Internet: Frictionless Commerce or Pricer s Paradise? FABIO ANCARANI, SDA Bocconi Graduate School of Management, Milan Are firms competing in a new world of frictionless e-commerce or is the Internet a pricer s paradise? It is not safe, at the moment, to say that the Internet is lowering online prices, decreasing price dispersion and increasing online customer price sensitivity. The strategic issue for firms pricing on the Net is avoiding the commodity trap and taking advantage of the other side of information transparency. Firms should increasingly rely on finer segmentation of their customers and resort to dynamic and smart pricing, product and price versioning and bundling. Multichannel and customer lifetime value pricing will become strategic issues Elsevier Science Ltd. All rights reserved. Keywords: e-commerce, Internet, Pricing, Competitive Strategy A myth was born with the emergence of the digital economy: it was the myth of a frictionless e-commerce. Bakos (1997, p. 40) made a clear prediction about the emergence of a frictionless e-commerce: lower buyer search costs in electronic marketplaces promote price competition among sellers. This effect will be most dramatic in commodity markets, where intensive price competition can eliminate all seller profits. The basic assumptions underlying this prediction are that: (a) the Internet can decrease transition and transaction costs; (b) customers can, at very low search costs, compare prices and attributes of different offerings by using shopbots and smart agents; (c) competitors are therefore only a click away. Consequently, lower search costs should lead to lower prices, which tend to decrease towards a perfect competition level. Firm managers are really worried about pricing in such a world of increasing competition and transparency, because they fear that the balance of power is gradually shifting from firms to customers. In fact, in some cases, prices are set by customers and not by firms: this is the reverse pricing process (Sawhney and Kotler, 2001). For example, customers buying an airline ticket on Priceline.com can specify their departure and arrival points, the date and time and name their own price for it. In such a scenario of reverse marketing and pricing, firms are threatened not only by easier price comparisons but also by cost transparency (Sinha, 2000). The cost structure of firms competing on the Web is more easily visible to other competitors and to customers, who can, in many cases, see the firm s price floor. As a consequence, firms might experiment with lower margins, commoditisation of their products and services, weaker customer loyalty and perceptions of price unfairness. But is the Internet really a great equaliser for prices or is there a fiction for no friction (Murray and Haubl, 2001)? Is frictionless e-commerce a myth or is it becoming a reality? Is there only one side of the information transparency or is there another dark side? A growing number of academic papers and of business cases are gradually questioning the frictionless commerce theory and proposing alternative explanations. Not only do customers have lower search costs for information about pricing, but firms and retailers also have lower search costs for information about their customers (Pitt et al., 2001). If firms can manage their e-commerce and pricing strategies smartly, they have the possibility to compete in a pricer s paradise (Baker et al., 2001). Therefore, the critical issue for firms pricing on the Net is avoiding the commodity trap and taking advantage of the other side of information transparency. Firms have a wide range of possible pricing strategies they can implement. They can, far more than they actually do, rely on finer segmentation and resort to price discrimination, dynamic and smart pricing, product and price versioning, price bundling and unbundling. They can also improve the value proposition offered to the market in order to defend their prices and, at the same time, deal with two new strategic issues in 680 European Management Journal Vol. 20, No. 6, pp , December 2002

2 digital pricing: multi-channel pricing and customer lifetime value pricing. By doing so, there is an Internet advantage, because the pricing mechanisms available on the Net and the increasing flexibility they offer will help firms in the above-mentioned strategies. Is the Internet Really Lowering Prices? The frictionless commerce theory is under pressure at both a theoretical and an empirical level. A very well known contribution is an article by Reichheld and Schefter (2000), which aims to show the critical role of loyalty in the digital economy. The authors argue that, with respect to customer loyalty, the old rules are as vital as ever and the Internet has not changed the role of loyalty, which has become even more critical in the digital economy. In their opinion, the Internet is not a frictionless environment, but a very sticky place. Their paper put forward the hypothesis that price does not rule the web, loyalty does (Reichheld and Schefter, 2000, p. 17). Similar conclusions about the increasing role of customer loyalty in digital environments are drawn by Urban et al. (2000), who suggest it is necessary to place trust at the centre of your Internet strategy. As regards the buyer search process, some frictionless commerce assumptions can be questioned. Buyer search costs can be distinguished between search costs about price information and search costs about product and quality information. Lower search costs about price information obviously lead to lower prices. However, when we also consider quality information, the increasing information provided to customers can lead to lower price sensitivity and even to higher prices 1. Therefore it is not surprising to observe that, at an empirical level, researchers are finding that online price levels and dispersion are similar, if not higher, than offline and that online customer sensitivity is lower than offline. As regards price levels, many empirical studies 2 have analysed the difference between online and offline price levels in different product categories ranging from books and CDs to cars. With the relevant exception of one research study that of Brynjolffson and Smith (2000) all the studies showed that prices are higher online than offline. Moreover, when pricing policies of multi-channel retailers are considered, prices of pure Internet retailers are significantly lower than those of online multi-channel retailers (Tang and Xing, 2001), thus signalling that firms competing on multiple channels are able to adopt smart pricing strategies. As regards price sensitivity, all the research shows that, in contrast to conventional wisdom, when firms provide their customers with a rich flow of non-price (quality) information, the online medium does not increase customer price sensitivity (Lynch and Ariely, 2000; Baker et al., 2001). As regards price dispersion, all the empirical research shows that, irrespective of whether it is slightly higher or lower online or offline, price dispersion online tends to be persistent and strong (Pan et al., 2001). The emergence of price dispersion is very important for marketing researchers and practitioners, because high levels of dispersion demonstrate that it might be possible to design and implement customer value-based pricing strategies. Economists who study price dispersion attribute its causes to product heterogeneity, convenience and shopping experience, customer awareness, retailer branding and trust, lock-in effects, retailers price discrimination strategies. From an economic point of view, these causes are potential obstacles, which prevent prices from converging to perfect competition level. Fortunately, from a managerial point of view, these causes are the very foundation on which firms can implement effective competitive and marketing strategies on the Web. An Empirical Analysis of Price Levels and Price Dispersion in the Online and Offline World in the Italian Market We carried out an empirical research on price levels and price dispersion in the online and offline environment with reference to the Italian market. We chose two product categories for our empirical analysis, books and CDs, since we could compare completely homogeneous products and control for heterogeneity. Research was carried out on a daily basis over a period of five weeks, between March and April 2002 on a sample of traditional retailers in the area of Milan (Northern Italy) and e-tailers. We had 5635 price quotes for CDs and 8085 for books; our data set was therefore composed of 13,720 price quotes. Our research aimed to compare online and traditional retailers and obtained the following results. As regards books, the price level online is 6 per cent lower than offline. This result was obtained by considering only pure prices that do not include the shipping and expedition costs of online retailers. When shipping and expedition costs are included, online prices are 10 per cent higher online than offline. When only pure prices are considered, price dispersion online is slightly lower than offline; the standard deviation measure is 5 per cent lower. When shipping and expedition costs are considered and completely charged on a single purchase, price dispersion online, measured by the standard devi- European Management Journal Vol. 20, No. 6, pp , December

3 ation coefficient, increases by 6 per cent and is 1 per cent higher online. As regards CDs, the price level is 4 per cent lower online than offline. We obtained this result by considering only pure prices; if shipping and expedition costs are fully charged on a single purchase, price levels are 12 per cent higher online than offline. When pure prices are considered, price dispersion online is slightly lower (3 per cent) online than offline when measured by the standard deviation. If shipping and expedition costs are fully charged on a single purchase, price dispersion measured by the standard deviation is 5 per cent higher online than offline. We ran t-test and non-parametric tests (Mann Whithey and Moses test) to see whether there were significant differences between online and offline levels; they are all significant (except for one case) with a p value significance below for both price levels and for price dispersion, for books and for CDs. Table 1 shows the findings. When comparing pure price levels, our results show that the Internet produces a possible efficiency effect on pure price levels, which are lower online than offline. This happens only when pure prices are taken into consideration and the difference is very slight. When adding shipping costs, we obtain opposite results and prices are always higher online. When pure prices are considered, standard deviation is slightly lower on- than offline; it increases and becomes higher when shipping costs are added. From our point of view, this means that levels and dispersion increase merely by bundling a completely homogeneous product with a completely homogeneous service. Moreover, whether it is higher online or vice versa, dispersion seems to be persistent, and this is a strong empirical disconfirmation of the frictionless commerce hypothesis. Therefore, the efficiency effect of the Internet is not as strong as Bakos (1997) predicted: after many years of diffusion, online prices are only slightly lower online than offline and online dispersion is still persistent. Managerial Implications of Pricing in the Digital Economy Managers competing and pricing in the digital economy have to face many different challenges: these can range from more defensive to more offensive ones. More defensive challenges are mainly avoiding pure price and product comparisons, avoiding customers clicking away to other competitors, defending and improving current competitive positions and price levels. More offensive challenges are mainly related to taking advantage of different customer value perceptions and increasing the value of relational assets. Instead of worrying about the increasing information democracy on the Web, managers should consider that the Internet offers firms the possibility of performing better in a wide spectrum of possible strategies that can transform a world of frictionless commerce into a pricer s paradise. First, the Internet allows firms to resort to traditional marketing strategies such as customer segmentation, price discrimination, dynamic and smart pricing, product and price versioning strategies, bundling and unbundling strategies more frequently and in a more efficient and effective way. Secondly, the Internet allows firms to improve the value proposition offered to their customers in order to maintain and defend their prices. In this case, brand and trust building, increasing shopping experience and convenience, creating lock-in effects could be useful strategies facilitated by the Internet. Moreover, the Internet offers two new strategic options to firms competing in the e-commerce world: multi-channel pricing and customer lifetime value pricing. Table 1 Price Levels and Price Dispersion of Books and CDs in the Italian Market Books CDs Online Offline Delta (%) P value Online Offline Delta (%) P value Price levels Pure levels With ship costs completely charged Dispersion SD on pure prices SD on prices with ship cost completely charged Not significant below level 682 European Management Journal Vol. 20, No. 6, pp , December 2002

4 The above-mentioned strategies can provide firms with a mix of solutions to their main competitive challenges. By analysing each strategy, we will try to show the Internet advantage, that is, how some features of the Internet world can help managers make the best competitive and pricing decisions. The range of possible strategies is shown in Figure 1; the link between managerial challenges, the range of possible strategies and the Internet advantage is represented in Figure 2. Finer Customer Segmentation Firms can radically increase their ability to segment the market and to customise their offering (Wind and Mahajan, 2001) in order to avoid pure price and product comparison. The Internet, in fact, will help them collect data and improve their capability to segment the market and customise offerings. Some firms, in fact, are implementing strategies, which can be defined as one-to-one product and one-to-one pricing. An interesting example of this kind of strategy is Reflect, a digital brand of Procter & Gamble. In the e-commerce of cosmetic products, Reflect offers more than 40,000 possible combinations of product attributes and services. Since customers are required to create their own product, it is rather impossible for two customers to buy and compare two identical products and to subsequently pay the same price. Bundling and Unbundling Strategies Firms can also resort to bundling and unbundling strategies. Bundling strategies can be used when firms want to avoid pure price and product comparison on each single item sold on the Web. Bundling is easier on the Internet because firms, by linking the physical and virtual value chain (Evans and Wurster, 2000), can provide their customers with integrated packages of offering in a one-stop-shop purchase. One of the first and simplest bundling strategy is mixing products with delivery and shipping services: in many of the empirical studies on price levels, as soon as products are bundled with their shipping services, price levels and price dispersion increase. In the software industry, many products are sold with their updated or add-on versions at bundled prices. Many merchants on the Web bun- dle hardware and software in terms of both products and services. In the publishing industry, the online and offline versions of newspapers and magazines are sometimes bundled: the price of the bundling offer includes subscription to the traditional newspaper or magazine, access to the online edition and many services offered on the website. One example is the case of The Wall Street Journal. Unbundling strategies can be used when firms want to make it easier for their customers to reverse their marketing and pricing processes. Many merchants in the hardware industry offer their customers the possibility of assembling different components each one individually priced; a vendor like Dell does the same on its website. More generally, when firms allow their customers to create customised products and services, unbundling strategies can be useful. Versioning Strategies Firms can resort to product and price versioning strategies either in a defensive way, in order to avoid comparisons, or in an offensive way, in order to meet the different value perceptions of customers. Firms and retailers competing in the traditional economy are very familiar with the strategies of product versioning and pricing. In the digital economy, firms and retailers should resort to these strategies more frequently, especially with regard to information goods, mainly because the costs of producing different versions of these goods are almost zero (Shapiro and Varian, 1998). A good example is the software industry: in fact, firms competing in the software industry can usually produce a certain number of versions or sub-versions of their products and sell them on the market at different prices. By doing so, they can take advantage of the different value perceptions of the different market segments and also experiment with possible thresholds of price sensitivity. Quicken is a well-known example of this strategy, because it offers the basic version of its financial software at 20$ and the Deluxe version at 60$. In their study on the pricing of information goods Shapiro and Varian (1998) suggest that firms should create different versions of their products by acting on attributes such as time lag, digital interface, shopping conditions, quantity and quality of information delivered, etc; Figure 1 The Range of Possible Strategies European Management Journal Vol. 20, No. 6, pp , December

5 Figure 2 Managerial Challenges and the Internet Advantage Lock-in Effects Firms should create lock-in effects for their customers, in order to avoid their clicking away towards other competitors. The Internet facilitates these strategies by offering easier and cheaper ways to collect data and allowing customisation. Dell, for example, creates thousands of Dell Premier Pages, in order to offer its customers personalised and different accesses to its website. More generally, the digital interface is one of the most important tools in creating lock-in effects. The so-called one click ordering is another tool, closely connected to the first, which facilitates the customer s buying process on the site. The case of Peapod is a good example of the lock-in effects. Before starting the payment procedure, the customer shopping with this e-tailer is shown a web page reminding him of the five most frequent items he is used to buying. In Volendo.com, an Italian grocery e-tailer, customers can save all their previous purchases in a standard shopping list or create different lists for different occasions (weekends or parties). Shopping Experience and Convenience Firms can also increase their customers shopping experience in order to improve their competitive position and price level. Retailers can increase the shopping experience of their sites by offering superior product information, extensive product reviews of experts and other customers, product samples (for 684 European Management Journal Vol. 20, No. 6, pp , December 2002

6 example, abstracts of books or extracts of a CD or DVD) and other services, thus lowering their customers price sensitivity. Many automotive producers, such as BMW, even allow their customers to design, create, change and test their models. As we have previously stated, if firms offer their customers a rich flow of non-price (quality) information, price sensitivity decreases. Firms can also improve their customers shopping convenience, which is valuable for time sensitive consumers. Another tool designed to increase shopping convenience is the search engine, which makes it easier for customers to find information. Branding and Trust Building Firms should strive to increase their branding and build up trust. As Reichheld and Schefter (2000) have shown, loyalty is a more critical issue in the Web than in the traditional economy. It is widely known that retailers with strong customer awareness, such as Amazon.com and Cdnow, can charge premium prices over less well known competitors such as Books.com and CD Universe, even for products which are homogeneous. Indeed, as regards the value of branding and trust in e-tailing, the case of Amazon.com is exemplary. Although it by no means offers the lowest prices, customers prefer it over other e-tailers even when they make shopbot comparisons. On the Internet, firms can increase trust by preparing online loyalty programs and creating online communities. For example, Ducati, one of the world s leading motorcycle manufacturers, has created a large online community of motorcycle fans that share their experience with other bikers. Price Discrimination and Dynamic Pricing Firms can implement dynamic and smart pricing, charging customers different prices and thus take advantage of their different value perceptions. Online price discrimination seems to be one of the best strategies for firms pricing in the digital economy. Dynamic pricing is not new, since airline companies have implemented it for many years (in the so-called yield pricing and yield management). The digital economy helps firms implement dynamic pricing strategies in many other industries on a continuous basis. Price discrimination, in fact, is more feasible in an electronic world than in the traditional market since, on the Internet, menu costs are lower and firms and retailers can gather information on customers at very low costs. The Internet, in fact, is lowering the so-called menu costs connected with changing prices in the offline world and is helping firms track and profile their customers. Although it is widely known that pure player retailers can change their prices many times on a daily basis, a producer, like Dell, for example, can change its prices every fifteen days. Time-based pricing might be adopted in price discrimination and dynamic pricing: in the tourism industry, for example, early buyers are generally willing to pay more; last-minute buyers are willing to run a major risk but want to spend less. Another possible tool is personalised discounts. Volendo.com, an Italian e-tailer for groceries, discriminates prices by offering its more loyal customers (those who purchase more than twice a week) coupons and personalised promotions. Many multichannel players can also use their different channels in order to discriminate prices. In the travel industry, Ryanair offers different prices depending on whether customers buy online or offline. In implementing dynamic and smart pricing, firms should be able to avoid the risk of adopting smart pricing in a nonsmart way, thus creating price unfairness perceptions (Sinha, 2000). Multi-channel Pricing The winning business model in the digital economy seems to be that of the hybrid firm, the so-called click and mortar or click and brick firm. When pricing is taken into account, this poses a problem for multichannel pricing. In this case, firms have different options, either to take advantage of different customers value perceptions or to increase the value of their relational assets. They can choose to offer different products on different channels, thus avoiding any possible confusion and conflict. This is the case, for example, for Procter &Gamble, which has decided to resort to e-commerce only for products not available in traditional channels. Other firms might choose to offer their products on all the available channels at the same price. This is the case, for example, of Omnitel Vodafone, which offers its services of prepaid telephone credit card at the physical points of sale and on its website at the same conditions. Other firms can choose to offer their products on all the available channels, but to differentiate prices (and products). In this case, discrimination of prices is again the critical point. Many banking and financial institutions are implementing multi-channel pricing policies by offering their customers different conditions for trading and financial operations in the traditional branch or online. Customer Lifetime Value Pricing In the digital economy, firms should focus less on the profitability of the single transaction and more on the lifetime value of their customers. Therefore pricing in the digital economy should increasingly focus on building and strengthening strong, long-term relationships between firms and their customers (Sawhney and Kotler, 2001). One of the most important managerial implications is that, with reference to the pricing objectives, firms should increasingly focus on customer lifetime value and customer equity (Wayland and Cole, 1997) and on the tran- European Management Journal Vol. 20, No. 6, pp , December

7 sition from a cost-based pricing to a customer lifetime-based pricing. There is an Internet advantage in implementing this strategy because the Internet helps firms to better track and profile their customers and to implement effective CRM (Customer Relationship Management) activities. Firms pricing in the digital economy can therefore increase the value of customer equity in the long term. One interesting example of this change in perspective comes from the so-called Price Plan Review adopted by Omnitel Vodafone. This firm continually tracks its best customers and has created software that enables Vodafone to alert them when another tariff profile (an existing or new one) is more convenient before the customer himself or the competition can discover it. In many cases, the firm thereby loses margins in the short run but gains value and customer equity in the long run. The Increasing Flexibility of the Pricing Mechanisms on the Web In implementing the above-mentioned strategies, firms should rely on one general Internet advantage, that is, the flexibility of the different price mechanisms available. Therefore, firms pricing on the Internet can resort to the fixed price mechanism, the negotiated price mechanism or auctions and marketplaces. In the fixed price mechanism, the seller sets a fixed price for products and services offered to the customer and the latter has to decide whether to buy or not: negotiation is not allowed. According to Dolan and Moon (2000) there can be two possible sub-versions of the set price mechanism: the first is periodic revision of prices, the second is dynamic pricing. As discussed earlier, the latter seems to be one of the most important features of pricing in the digital economy. In the negotiated price mechanism, sellers and buyers begin a negotiation process in digital networks, starting from a fixed price or from a RFQ or RFP (Request for quotation or Request for proposal). A particular version of the negotiated pricing mechanism is the co-buying process (Dolan and Moon, 2000): some infomediaries can aggregate customers to increase the bargaining power and obtain lower prices. Letsbuyit.com is an example of this kind of infomediary. As regards the auctions mechanism, we can distinguish between classic auctions, where buyers compete to obtain the product on auction by offering the highest price, and reverse auctions, where sellers compete in deciding whether to accept or not the price set by the buyer, in a reverse pricing mechanism. The Priceline.com case is the best known case of reverse auction. Auctions have existed for a long time, but in the traditional economic world they were confined to specific situations and only for particular kinds of goods. Now they are widely used on the Net: the Internet, in fact, increases the economic efficiencies associated with the auction model 3. In the digital marketplace mechanism, suppliers and buyers meet dynamically and continuously in a virtual and digital environment. Auctions and digital marketplaces are dynamic in their nature and they are consequently very useful since they allow firms to get rid of excess inventory or to profit from excess demand in a way that is not possible in the traditional marketplace. In this sense, they help firms to implement more effectively two different pricing strategies: peak load pricing and clearance pricing. Peak load pricing allows suppliers to systematically increase prices when demand increases. Peak load pricing is appropriate when supply is inflexible; this can occur, for example, with long distance telephone services. Clearance pricing is useful when companies that sell products with short life cycles must clear out the excess in inventory: the computer industry is a good example of the adoption of clearance pricing. Since the four above-mentioned pure pricing mechanisms can be mixed, it is possible to have combinations of fixed and negotiated pricing, fixed pricing and auctions, negotiation and exchange and so on. Thus, when pricing in the digital economy, firms can take advantage of the flexibility and possible combination of these four different price mechanisms. Conclusions In conclusion, in the digital economy, the pendulum of information and power shifts continuously. Customers have lower search costs and, with more access to information, can compare products and prices and, in many cases, also set prices, thereby reversing the traditional marketing and pricing process. On the other hand, since firms and retailers also have lower costs in acquiring information on their customers, they can track and profile them and customise products and prices. In the digital economy, pricing might be subject to a paradox: in fact, on the Internet, pricing can be both an extraordinary powerful weapon and a useless one (Simon and Schumann, 2001) 4. The principal managerial challenge is whether firms can resist the commodity trap and take advantage of the increased information, instead of being pressed by the increasing power of customers. If firms are unable to resist the commodity trap they run the risk of competing on prices for products which are perceived as commodities: in this case, price is a useless weapon. On the contrary, if firms are able to take advantage of the increasing information they also have, the Internet can become a pricers paradise since it makes it easier to implement a wide spectrum of competitive and pricing strategies: in this case, price is an extraordinary powerful weapon. 686 European Management Journal Vol. 20, No. 6, pp , December 2002

8 Notes 1. See the paper by Lal and Sarvary (1999) on this point. 2. Smith et al. (2000) offer a detailed review of the empirical studies on pricing in the digital economy. 3. More specifically, the Internet (Dolan and Moon, 2000, pp ): (a) lowers search costs for sellers looking for buyers; (b) lowers costs associated with making inventory available to buyers immediately; (c) lowers buyer costs associated with accessing hard-to-find items; (d) makes it easier to create buying communities. 4. As Simon and Schumann (2001, p. 382) put it, the paradox of pricing in a digital economy is that Pricing is an increasingly powerful weapon.yet pricing is becoming an increasingly useless weapon. Dolan and Moon (2000, p. 73) put it in another way: Internet is a disaster for those with a commodity selling mentality. References Baker, W., Marn, M. and Zawada, C. (2001) Price smarter on the net. Harvard Business Review February, Bakos, J.Y. (1997) Reducing buyer search costs: implications for electronic marketplaces. Management Science 43(12), Brynjolfsson, E. and Smith, M. (2000) Frictionless commerce? A comparison of internet and conventional retailers. Management Science 4, Dolan, R.J. and Moon, Y. (2000) Pricing and market making on the internet. Journal of Interactive Marketing 14(2), Evans, P. and Wurster, T.S. (2000) Blown to Bits. How the new Economics of Information Transforms Strategy. Harvard Business School Press, Boston, MA. Lal, R. and Sarvary, M. (1999) When and how is the internet likely to decrease price competition? Marketing Science 18(4), Lynch, J.G. and Ariely, D. (2000) Wine online: search cost affect of competition on price, quality and distribution. Marketing Science 19(1), Murray, K.B. and Haubl, G. (2001) The Fiction of no Friction. An Empirical Investigation of Cognitive Lock-in as a Result of Brand Specific Training in an on Line Shoppimg Environment. Marketing Science Conference Proceedings, Wiesbaden. Pan, X., Ratchford, B.T. and Shankar, V. (2001) Why aren t the Prices of the Same Item the Same at Me.com and You.com? Drivers of Prices Dispersion among e-tailers. Working Paper, University of Maryland. Pitt, L.F., Berthon, P., Watson, R.T. and Ewing, M. (2001) Pricing Strategies and the Net. Business Horizons Mar-Apr, Reichheld, F. and Schefter, P. (2000) E-loyalty. Your Secret Weapon on the Web. Harvard Business Review Jul-Aug, Sawhney, M. and Kotler, P.M. (2001) Marketing in the age of information democracy. In Kellogg on Marketing, ed. D. Iacobucci, pp Wiley, New York. Shapiro, C. and Varian, H.R. (1998) Information Rules. A Strategic Guide to the Network Economy. Harvard Business School Press, Boston, MA. Simon, H. and Schumann, H. (2001) Pricing opportunities in the digital age. In Digital Marketing. Global Strategies from the World s Leading Experts, eds J. Wind and V. Mahajan, pp Wiley, New York. Sinha, I. (2000) Cost Transparency: the net s real threat to prices and brands. Harvard Business Review Mar-Apr, Smith, M.D., Bailey, J. and Brynjolfsson, E. (2000) Understanding digital markets: review and assessment. In Understanding the Digital Economy, eds E. Brynjolfsson and B. Kahin. MIT Press, Cambridge, MA. Tang, F. and Xing, X. (2001) Will the growth of multi-channel retailing diminish the pricing efficiency of the web? Journal of Retailing 77, Urban, G.L., Sultan, F. and Qualls, W.J. (2000) Placing trust at the center of your internet strategy. Sloan Management Review 42(1), Wayland, R.E. and Cole, M. (1997) Customer Connections. New Strategies for Growth. Harvard Business School Press, Boston, MA. Wind, J. and Mahajan, V. eds (2001) Digital Marketing. Global Strategies from the World s Leading Experts. Wiley, New York. FABIO ANCARANI, SDA Bocconi Graduate School of Management, Via Bocconi 8, 20136, Milan, Italy. [email protected]; tel.: ; fax: Fabio Ancarani is Assistant Professor of Marketing at SDA Bocconi Graduate School of Management, Milan, and responsible for in-house executive courses in marketing. He researches into strategic marketing, competitive analysis and pricing. In 2002, he was Visiting Scholar at the University of Maryland. European Management Journal Vol. 20, No. 6, pp , December