Price Comparison Sites and Competition (PDF; 747 KB)
Source: Economic & Social Research Council (UK)
From press release:

The study analyzed ‘clicks’ made by consumers when choosing specific products at online stores, and has identified a number of money-saving strategies for online shoppers in both the US and the UK. These include:

1. Don’t Start from the Top
   Seventeen per cent of consumers using price comparison sites fall into the trap of simply clicking on the seller that appears at the top of the screen -even when that seller doesn’t offer the best price or have the best reputation. According to Professor Michael Baye of the Kelley School of Business at Indiana University, consumers should “be proactive in their searches. A simple way to find the best deal is to take advantage of the `sort by price’ feature that most price comparison sites offer.”

2. More Listings = Better Deals
   Firms are more likely to offer better deals on products sold by many competitors than only a few. According to the study, a firm that offers the lowest price gets 60 per cent more business than a firm charging a higher price. The more firms selling a product, the more likely a firm will succumb to the pressure to “race to the bottom” and offer a bargain price.

3. Exploit Targets of Opportunity
   According to the study, “At price comparison sites, the number of firms listing prices for a given product, and the identity of the firm charging the lowest price, change almost daily.” For consumers, the fast-moving nature of online markets means that there are benefits to continuing to monitor prices over time, and to grab good deals when they are available – rather than expecting the offer to last for too long.

4. Other Considerations
   But price isn’t everything as online shoppers can also easily compare other aspects of retailer service, such as website development, payment security and delivery quality. Some retailers try to win customers by improving quality of service, rather than through slashing their prices. There are also payoffs to firms with a serious “brick and mortar” presence. According to the study, these firms enjoy about 32 per cent more online business than their purely online competitors.

This entry was posted on Wednesday, December 13th, 2006 at 1:35 pm and is filed under Business and economics, Consumer issues, Internet. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.