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“A lot of early studies predicted that all firms would be forced to price their goods at cost and prices would be driven down,” according to Michael Baye, a professor of economics at Indiana University’s Kelley School of Business. In addition, online price comparison sites—designed to guide consumers to the lowest prices—were expected to level prices all around, all but evaporating retailers’ profit margins (Festa, 2005).
Comparison engines suffuse online and are increasingly a bind of portal sites. There are many examples. Google launched the Froogle site in 2002. Bertelsmann has a stake in Shopping.com, which made a successful initial public offering. Yahoo purchased Kelkoo, and AOL found its InStore comparison site. Shopzilla, which used to be called BizRate.com, still runs the BizRate.com customer review site (Festa, 2005; Shen et al., 2019).
These sites generally compare prices and the users’ satisfaction and comments, which help the other users’ purchase when they search for goods information on these sites. Thus, online word of mouth (WOM) plays a significant role here, influencing the customers’ behaviors and companies’ online pricing strategies. WOM is a reference to the passing of information from person to person. It now includes any human communication. Further, presently WOM on the internet, also called electronic WOM (eWOM), generates great significance for internet marketing.
eWOM has shown its power recently. In 2017, despite an ever-expanding array of advertising platforms and sources, consumers worldwide still placed their highest levels of trust in other consumers (Nielsen, 2017). According to the report from Nielsen, it conducted a twice-a-year survey among 26,486 internet users in 47 markets from Europe, Asia Pacific, the Americas, and the Middle East, which most recently quizzed consumers on their attitudes toward thirteen types of advertising—from conventional newspaper and television ads to branded web sites and consumer-generated content. David McCallum, the global managing director for Nielsen’s Customized Research Services, said, “Advertisers around the world can reach consumers across an increasingly diverse range of media platforms” (Nielsen, 2017). This situation explains how eWOM has become a critical factor that triggers customers’ internet shopping.
However, for the marketplace, price is always a crucial factor in customers’ buying process. Therefore, for the rising power of eWOM, it is imperative to ask how the effects of eWOM work on the seller’s side. Or, specifically, whether the extant understanding of online retailer pricing strategies is impacted by the price comparison engines, especially eWOM, and can explain the online retailers’ pricing behaviour.
It has been suggested that descriptive research on the determinants of retailer pricing strategies aids managers in profiling their pricing practices and predicting competitors’ behavior (Shankar and Bolton 2004). However, as a retailing channel, the Internet differs significantly from the traditional marketplace. It is characterized by the vastly increased availability of information regarding product attributes, prices, and retailer service quality metrics (Venkatesan et al., 2007). Furthermore, the results from Offline markets studies (Pakes 2003, Betancourt & Gautschi, 1993; Shankar & Bolton 2004; and Chintagunta, 2002) establish that retailers make pricing decisions that not only reflect the internal resources and objectives of the retailer but also point to the fact that retailers pay close attention to the characteristics of the market in which they operate. This point raises whether a similar effect is observed in online markets. If it could be, how does eWOM influence online pricing?