MIT Biz School: Brands Beat Prices Online

Welcome Guest. | Log In| Register | Membership Benefits

December 08, 2004 (5:14 PM EST)

By Antone Gonsalves , TechWeb Technology News

Retailers expecting to use the lowest price to attract online shoppers are in for a surprise.

Researchers at Massachusetts Institute of Technology's Sloan School of Management have found that slightly more than half of the consumers it watched shop online for a year actually paid more for a product, if it came from a well-known vendor.

The study, which ran from early 2003 to early 2004, monitored 10,000 searches by shoppers looking for books that were among the 100 most popular titles. The searches took place on DealTime.com, an Internet comparison-shopping service that lists several dozen retailer offers at a time. The listings include pricing and shipping information, product ratings and more.

Researchers chose to monitor book shoppers because the products they buy are exactly the same.

"We went in thinking a book is a book," Erik Brynjolfsson, director of the center for e-business at Sloan, said Wednesday. "But we found out that people care a lot about who they buy from, even if what they're buying is a commodity."

Fifty-one percent of the shoppers scrolled down from the lowest priced books at the top of the list to the better-known retailers, paying several dollars more to buy their tomes from a vendor they knew. The hardcover books monitored in the study cost an average of $42.

Of course price made a difference to many, given that 49 percent of the shoppers bought the lowest-priced book. But Brynjolfsson and his fellow researchers expected closer to 100 percent of the shoppers to choose to pay the least possible for the same product.

"The vicious price competition predicted (on the Internet) by retailers and economists is not what we found," Brynjolfsson said.

For example, the largest Internet retailer, Amazon.com Inc., had a share of sales four times greater than expected, if the purchases had been based on price, Brynjolfsson said. People were willing, on average, to pay $3 more to buy from Amazon.

The lesson for retailers is to focus as much on building a brand that instills trust as on price, Brynjolfsson said. Online shoppers want to pay less, but they also want to feel confident that the products they receive are what they ordered and are delivered on time and undamaged.

"Don't think that price is all the consumer will care about," Brynjolfsson said.

For consumers, Brynjolfsson's research found that comparative shopping through marketplaces like DealTime generated $6.50 of additional value to their purchases. The value came from faster shipping and better prices than consumers would have gotten if they went straight to one retailer.