Digital Pricing

A review of the academic literature

This is an edited version of Chapter 5. The price from my book Advanced Introduction to Digital Marketing (2022), UK: Edward Elgar. It reviews and synthesizes the academic literature (mainly from marketing, but also from associated fields) on pricing in digital contexts.

Pricing decisions are among the few marketing decisions that bring in revenue for the brand, and because price exerts greater leverage than other profit drivers like costs or sales revenue, even small price changes can impact profit significantly, for increases as well as decreases (Dholakia, 2017). For consumers, not only is the price a crucial variable during decision making, but it also affects other stages of the digital customer journey in the CCDM framework, acting variously as a form of knowledge, a signifier of value and cultural meaning, a conveyor of social identity, and a means to exert influence during the buying process (Dholakia, 2019). Digital technology affects all these price characteristics, making prices more accessible and therefore, potentially more transparent, cheaper to change, and therefore more dynamic and short-lived. It allows the implementation of digitally-centric pricing structures like subscriptions, metered pricing, and auctions and enables customers to play a greater role in determining the price. These and other impacts of digital technology on prices and pricing strategy have been studied extensively by marketing scholars and are considered in this chapter.

Price Dispersion and Price Transparency

From the early days of digital marketing, business scholars have cautioned that the abundant and easy availability of price information online would hurt the value of brands. By making prices and their inputs readily available to customers, the internet would reduce price dispersion (Brynjolfsson & Smith, 2000; Clay, Krishnan, & Wolfe, 2001; Pan, Ratchford, & Shankar, 2004) and increase price transparency (Sinha, 2000). These early discussions predicted that during the research, evaluation, and buying process, customers would give greater weight to the price than to other product attributes. They would compare prices across digital channels, choose the lowest-priced seller, leading to price premium and margin erosion even for strong brands (Bakos, 1997; Sinha, 2000; Tang & Xing, 2001).