Coping With Price Transparency

Back in 1999, I used the Internet to help me research my first automobile purchase. Even four years ago, the Web offered a wealth of information not easily available in years prior. With a minimum of searching, I was able to read myriad reviews, compare models, and, most important, view invoice price information. Armed with this ammunition, I visited several dealers to negotiate the price of the model I wanted.

Most of the dealers were not happy to see me, given the information I had uncovered. They were used to having the upper hand in negotiations — and preferred to have ignorant customers. Some dealers were hostile, suggesting Web sites had incorrect pricing information and I should trust what the dealer was telling me. These dealerships (there were many in the late 1990s) were greatly threatened by the transparency of information afforded consumers by the Internet. Most either chose to ignore the effects of the Web or were hostile to it.

I purchased my car from a dealer who welcomed my prior research, going so far as to verify the invoice price I found on Edmunds.com was correct. The negotiations were fast, painless, and, unlike other dealerships, nonconfrontational. This dealership understood price transparency is a reality and there are ways for businesses to use it to their advantage.

Unfortunately, many industries have not progressed beyond the insecurities and defensiveness of the automobile industry in the 1990s.

Take travel, for example. With an increasing number of travel sites claiming to have the lowest fares or hotel rates, consumers have learned no one site consistently has the lowest prices. In fact, Jupiter Research surveys show 90 percent of consumers search more than one site before booking a trip online. Moreover, the price guarantees created by several of the travel sites do not go far enough. Yes, they may match prices found on other sites, but they do not actually list competitors’ prices. Since consumers are going to visit other sites to check prices, why shouldn’t Hyatt post Expedia’s rates on its site?

When I’ve mentioned this idea to travel companies, they universally balk. “But sometimes our rates aren’t the lowest,” they say. “Why should I reveal my competitors’ rates?”

Travel sites should reveal competitors’ rates because consumers don’t believe they are getting a good deal if they don’t shop around. Even better, it will keep consumers on your site. Best-rate guarantees encourage people to shop around. Revealing competitors’ prices discourages the behavior.

This is not completely uncharted territory. Several years ago Progressive Insurance introduced an innovative feature on its Web site: The company compares its premiums with those of three other insurance companies. Not only that, the site has a scrolling window on its home page that lists price comparisons with other companies for recent searches done by consumers. And get this — Progressive is sometimes the most expensive.

Why does Progressive share competitive information?

• Price becomes less important. Ironically, displaying competitors’ prices actually makes consumers focus less on price. As consumers do not have to shop other sites for prices, they can actually spend their time learning about how Progressive differentiates itself.
• It builds trust. Trust is an important part of the relationship consumers have with their insurance companies. If consumers believe their insurance companies are not being completely honest with them, how can they assume the companies can be trusted when they have a claim to file?
• It maintains control of the customer. Progressive has decided it will embrace, not ignore, consumer behavior. If potential customers are going to shop around, why not provide them with the information and keep them on the Progressive Web site?

Transparency is scary. Frightened marketers have frequently addressed price transparency with endless price cuts, an easy way to deal with transparency in the short run without actually having to create a long-term strategy. Progressive has resisted lowering rates, even in the face of competitors’ price cuts. Admittedly, this strategy led to stagnant short-term growth. However, as competitors raised rates after a period of lower revenues, Progressive was able to focus on its differentiated service, not its prices.

Not every company needs to present competitors’ prices on its Web site. For instance, highly differentiated brands, such as Ritz-Carlton Hotels, would not be well served by addressing competitors’ prices because their marketing do not focus on price.

Transparency is not just about prices, though. Appliance manufacturers, for example, would be well served posting both positive and negative reviews of their products (as Amazon.com does). These companies cannot bury critical articles, and consumers are going to seek them out. They can build trust by presenting the good and bad about their products.

Consumers are going to continue to use the Internet to seek information about products and services. Smart companies will accept this behavior as the norm and seek ways to profit from it, not ignore it.

Meet Jared at the Jupiter ClickZ Advertising Forum in New York City on July 30 and 31.