Working Paper Details

Setting Prices in an Online World: When Price Customization Works (…and When it Doesn't)
Werner J. Reinartz


Pricing is how a company transforms the benefits that it provides to consumers into the profits it receives. The most important pricing change on the Internet is a dramatic rise in consumers’ ability to track prices and comparison shop. This rising transparency provides a challenging backdrop for organizations to implement dynamic price adjusting schemes (for example through auctions or sophisticated yield management solutions). Companies’ desire to maximize profits by adjusting their prices to customers’ willingness-to-pay must be tempered against the potential consumer backlash of perceived unfairness. For example, Amazon’s customers were irate when it became public that Amazon charged different prices for the same DVD - depending on the purchase history of a customer. This article outlines the new challenges and opportunities with respect to price customisation, both from a firm’s and from a customer’s perspective, and discusses the implications that arise in the online space.

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