In the 21st Century, most companies have realized that the Internet offers a valuable marketing opportunity. Additionally, the ability to sell products and services online has led to various online business models. Two of the most popular models are the Storefront and Auction models. Although each model is designed to sell goods and services, their functionality is fundamentally different.
Amazon.com is the quintessential example of a business utilizing the Storefront e-commerce model. As the world’s largest online retailer, Amazon offers products in almost every category ranging from books to power tools. Amazon’s storefront focuses on providing the widest assortment of goods at the lowest price. While building this monolithic online presence, Amazon has developed an extensive application platform that forms the foundation of the online storefront. Amazon has recently opened up this application platform to allow developers to utilize its power in their own applications. The gamble has paid off with nearly one third of the 65,000 registrants developing tools to aid Amazon’s resellers. These tools, known as Amazon Web Services, help resellers increase their own sales and profits. This has given Amazon a competitive advantage over other online retailers in terms of attracting quality resellers (Schonfeld, 2005).
Another kind of e-commerce model is the Auction site. Auction sites are designed to bring buyers and sellers together. Sellers offer products via the auction web site and buyers bid on the products. The buyer that bids the highest amount wins the item. The auction site makes money by taking a portion of the seller’s revenue (Rayport & Jaworski, 2004). eBay is one site that has perfected the Auction site model. Like Amazon, eBay has opened its application platform in an effort to stimulate community development. As a result, over 15,000 developers have begun creating applications that help eBay users do business better. As of April 2005, over 41 percent of eBay’s 33 million weekly auctions were listed using software developed by outside contributors. This software typical helps sellers automate their listings and increase their profit margins (Schonfeld, 2005). Since eBay shares in the revenues of its sellers, increased profits for sellers results in increased profits for eBay.
The obvious e-commerce solution for a product-based company is the Storefront model. This model focuses on generating sales for the company’s physical product. The company has an existing marketing and pricing plan in place for its brick and mortar operation, so there is no need to change that model and offer the product in an auction format. Additionally, the Storefront model encourages potential customers to visiting the physical store if they have any unresolved questions or concerns. Any company offering a specific product set would benefit from the Storefront model. The Auction model tends to benefit resellers that have random or inconsistent inventory.
Dynamic Pricing describes customized pricing scenarios that are offered to consumers based on their shopping history. The online company keeps records of a customer’s previous transactions and is able to offer them special discounts. Some dynamic pricing schemes involve lowering the price of individual items as customers add promotional items to their shopping cart. Additionally, companies can dynamically raise or lower their prices as business conditions change. If the cost of producing an item suddenly increases, the price of the item can be raised to reflect the change (Free Encyclopedia of Ecommerce, n.d.).
This form of Dynamic Pricing works well with the Storefront model. The ability to change customer pricing on the fly allows customers to receive discounts immediately rather than waiting for a coupon or sale at the brick and mortar store. Additionally, dynamic pricing allows the storefront to create complex offerings to entice consumers. Amazon.com does this with their free “Super Saver” shipping for qualifying purchases over $25. Any storefront site can take advantage of dynamic pricing when creating special offers for their customers.
Another form of Dynamic Pricing is value-based pricing. Value-based dynamic pricing allows customers to pay what they think the product is worth. In this case, the e-commerce site attempts to match the buyer with a seller willing to provide the product or service at the offered price. This has the benefit of putting buyers together with sellers that they might have not otherwise considered. It also gives sellers the opportunity to offer their products to a previously untapped market (EFE, n.d.). Although fundamentally different, the concept shares many similarities with reverse auctions.
Free Encyclopedia of Ecommerce. (n.d.). Dynamic pricing. Retrieved October 14, 2008.
Rayport, J. F., & Jaworski, B. J. (2004). Introduction to e-commerce (2nd ed.). New York: McGraw-Hill/Irwin.
Schonfeld, E. (2005, April). The Great Giveaway: Amazon, eBay, and Google are Opening Up Their Billion-Dollar Data Troves. Here’s Why They’re Doing It – And How You Can Take Advantage. Business 2.0, 6(3), 80. Retrieved October 14, 2008, from ABI/INFORM Global database. (Document ID: 815155471).