Case Study


It is well appreciated the Internet has become a good first source for obtaining information on pricing approaches for goods and services in both the consumer and industrial markets. In particular, the Internet is the place to find price bargains, for books, compact discs (CDs) and even electrical goods, although electronics manufacturers have been threatening to refuse to give discounts to online stores to protect their traditional retailers. Even so, some electronics goods can be bought nearly 20 per cent cheaper over the Internet, although for many items price differences are rapidly closing. A small survey of shopping list items by the Financial Times showed a mixed picture (Palmer, 2005). For the newest electronics devices, such as Apple’s video iPod and Sony’s PlayStationPortable (PSP) hand-held games console, the online and high-street price difference is small. However, for other items, such as digital video data (DVD) recorders and digital radios, considerable saving can be found through online shopping.
There is some flattening out of prices, but there is no cohesive picture [according to Glen Drury, Managing Director of, the price comparison website] Every retailer is still trying to feel their way through this. Some feel it is very important to have exactly the same prices online and in stores. Others are finding there is still a saving from selling over the Internet, which they are passing on to customers.
Interestingly, in the US, unlike the UK, there is little difference between online and store prices. Large US retailers such as Wal-Mart are so powerful in driving down manufacturers’ prices that small independent online retailers find it difficult to undercut these any further. It remains to be seen if a similar trend occurs in the UK in due course.
In the UK the most obvious online discounts are for books and CDs. The immense power of, the largest online bookstore, is keeping the price of books extremely competitive, while many online music retailers are benefiting from a tax loophole which allows them to avoid Value Added Tax (VAT) if their goods are sold through Jersey, in the Channel Islands, which is outside the EU. European law allows goods that are less than £18 (US$32) in value to be imported without VAT, which enables online music stores, whose goods mostly fall into this price range, to undercut high-street rivals and even supermarkets, which are often the most aggressive discounters of CDs. There are plans to limit the number of new companies setting up in Jersey to curtail this practice. However, according to the Interactive Media in Retail Group (IMRG), the industry body for online retailers, other tax-liberal countries such as Luxembourg and Switzerland could readily replace Jersey as the new base for distribution (Palmer, 2005).
For clothing, online price bargains are less clear. According to the IMRG, online sales are growing rapidly, especially for branded sports clothing. But, from the FT’s survey evidence, the price difference is small, suggesting that convenience rather than cost attract shoppers. With food and alcohol, the Internet appears to be at a disadvantage, where prices for drinks
often are comparable for basic costs but heavy delivery charges make Internet purchasing much pricier. Nevertheless, despite the apparent hidden extra costs that can be associated with online shopping, its use is steadily increasing as customers have become accustomed to its convenience and flexibility, especially at peak purchasing times such as the lead-up to festive shopping.
Of course, there are still other restrictions imposed, often for the convenience of retailers, in particular, that have to be considered with online shopping. Geographical coverage for online shopping may only apply to a particular country or currency using a given language. But, even in these cases, where appropriate, arrangements can be made for stores to adapt their websites for use in countries other than that of the originator. Language can be translated and selection of goods for sale targeted to country needs and acceptance of international credit and debit cards for payments can be made. There may also be specific consideration for delivery charges, together with any other export/import documentation expenses that come within the remit of international marketing.

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