Strategy and Competition: Online Pricing and Consumer Behavior

This essay delves into the realm of online pricing strategies and their impact on consumer behavior within the context of a competitive e-commerce landscape. It explores how retailers employ various pricing tactics, influenced by game theory and the strategies of competitors, to attract and retain customers. The essay examines the role of the sharing economy and the Trust Third Party (TTP) model in online transactions, highlighting how unexpected costs and end-pricing strategies affect consumer purchase decisions. It analyzes concepts such as Nash Equilibrium and the psychological impact of pricing, while also discussing the benefits and drawbacks of online shopping. The analysis covers aspects of competition, consumer psychology, and the evolution of online shopping, providing insights into how businesses navigate the digital marketplace to maximize sales and revenue.

Strategy & Competition

In online transactions an average customers pays more at the end of transactions than at
the beginning. The retailers and online dealers implements online pricing strategies in order to
attract and retain more and more customers. The pricing strategies implemented by the online
shopping websites depends upon the level of competition. According to the game theory of
economies, the pricing strategy of company depends on the pricing strategies of other company.
In accordance with this context, this essay aims to provide a hypothesis on online transactions
and consumer transactions behaviour. Covering the aspects and concepts of game theory and
game embedded strategies by Professor Patrick A. McNutt.
Economic activity involving online transactions is refereed as sharing economy. It is the
peer to peer sharing of goods and services through online modes and methods (Hamari, Sjöklint
and Ukkonen, 2016). In today's world, many organisation incorporating in United Kingdom
embarked on selling their products and services online on their owned website. This not only aid
in increasing the productivity and profitability of the organisation, but also assist in increasing
the customer base. According to UK Online Shopping and E-Commerce statistics, it was
identified that approximately 87% of consumers of United Kingdom purchase one product online
(Kitonyi, 2017). Terms and conditions of the retailers added various amounts of taxes and excise
on the products and consumer pays more price afterwards. This implies that the online pricing
strategies developed by the online retailers transforms and ambiguous to the customers.
Assume that in the global electronic market, economic agents or players, play a two
person game with each other randomly. In this scenario, the player is sometime buyer and
sometime seller, we model the game as systematic game. TTP model states that both the buyer
and seller have two strategies available for each business transactions. If buyer query the TTP
before making online transactions, he or she will get to know the past behaviour and reputation
of seller. This will help the buyer to reduce the exposure of risk in online transaction. Buyers and
sellers who obtain the digital certificate from the TTP model get a guarantee to some extent
about the price and quality of their trade. Buyers of sellers who did not use TTPs services can be
cheated for instance, they might get counterfeit product which was not described. In this context
the average payoff suppose “a” after reducing the fees for using TTP service for online

transaction through TTP is more than the average payoff suppose “b” for online transaction
without a TTP: a>b (Ba, Whinston and Zhang, 1999).
According to the game theory, there is always a conflict and cooperation between
intelligent rational decision makers. The game theory contends that the concept of “zero sum
game” means that in order for someone to get larger piece of pie another person has to give up
some of their own. It depends on the trust and belief between the person. In this context, win-
win scenarios between participants is facilitated by the sharing economy. The game embedded
strategies proposed by Patrick A. McNutt, states that retailers formulate pricing strategies on the
basis of the pricing strategies of other companies. For example, Company A, sells product A and
company B sells product B. Both the products are somewhat identical and similar. In this
scenario management of company A, reduce the price of product A by 15% with a belief that
Company B will not change the price of product. In this way, company A will be able to attract
more and more customers. This is the game strategy which is based on assumptions and
observations. According to Nash Equilibrium, each participate formulate and implements
strategy while considering opponents choice. He has no incentives, nothing to gain by switching
strategy (Nash Equilibrium, 2017). Many organisations in current economy implements the
concepts of game theory so that they can increase their customer base and improve their and
eliminate the competition from the environment. After analysing various shopping websites, it
was identified that rationale customer on an average pays more at the end of online transactions.
This is because many organisations formulated certain policies and procedures that increases the
final price of products and services. These policies can be taxes, delivery charges, excise, value
added tax, online charges, etc. These policies are formulated by the organisations in order to
improve the effectiveness of the company and online shopping experience (Laudon and Traver,
2013). For example, Debenhams Plc implemented competitive pricing strategy in which
company determine and set the price of products and services relatively low as compared to its
competitors like Boden, Tesco, Aldi, etc . This aid in increasing the customers and assists in
growth and development of the organisation.
Due to extra charges and additional fees taken by online shopping websites, the price of
products increases at the time of transactions. This implies that due to the policies and

procedures formulated and implemented by the companies the end price of the products and
services increases. Before transaction price shown to customer is low so that organisation can
play with the psychology of customer (O. Pappas and et.al., 2014). By seeing lower price,
customer attracts towards the products. This increases the chances that he or she will purchase
the particular product even after the price of end transaction increases. According to the game
theory, presumptions and estimation strategies implemented by the management by keeping
certain possibilities in mind that customer tends to purchase the products even if the end price is
more than the beginning price. Online shopping facilities reduces customer efforts and helps the
organisations to expand their business activities.
BIN price stands for Buy It Now price and it is the prices in which the seller is happy to
sell particular products without charging additional price. It depends on the buyer buying
capacity. If he or she is willing to pay the particular price, then seller cease the auction and sell
his or her product to the buyer on decided price. The BIN price must be at least as high as the
reserve price, but it can be higher. END price is the psychological pricing of products and
services done by the organisation in order to attracts more and more customers. End price can be
explained with the help of example; The price of product is £2.98. This is known as end pricing
strategy in which organisations plays with the psychology of customers. Here customers thinks
that they are paying price in range under £3. This leads to psychology impacts and customer
pays equivalent price of the products and services. These tactics are the part of game theory in
which organisations and management of online and offline stores implements these strategies so
that more and more customers can be attracted efficiently. These prices are set on the basis of
game theory which indicates that each and every price have psychological impacts on customer
purchase behaviour (Shrivastava, 2014). Thus, in order to attracts more and more customers
towards purchasing, organisations and online retailers formulate and implements the pricing
strategies so that organisation can earn more and more profits and revenue. Price match
strategies helps the organisation to eliminate competition from the market environment.
Companies like Best Buy, Amazon, etc. tends to use price match strategy in order to attract
customers. From the analysis it can be understood that in order to increase the sales and

production, organisation implements various pricing strategies in order to survive in competitive
markets.
Online mode of shopping is the glorious inventions which not only reduces the shopping efforts
of people but also increases sales and revenue of the organisations. No more travelling to
multiple stores to find the right product; no more having to deal with over-enthusiastic sales
persons; no more standing in long lines at the checkout counter (Mittal, 2017) The e-commerce
boom has certainly changed the way we shop for the better. In today's business world, nearly all
the business organisation started online facilities for the consumers, where customers can
purchase goods and services online with the help of personal computers or smart phones. Due to
increase in digital payment facilities, customers can pay online digitally and safely.
The encryption process of online transactions websites is robust enough to protect the
vital and important information of the customers. Due to strong encryption and security,
customers can not only purchase goods and services online, they can also do other activities like
online banking, etc. Consumers tends to purchase products and services only from those websites
which are authentic and which have Secured Socket Layer (SSL) certificates (Jani, 2015).
Consumer purchase decisions are influenced by the price and other customer reviews. They
consult various reviews of different website before making purchase. It was analysed that 81% of
women consults other customer reviews who have purchased the particular products from the
shopping website, before purchasing online products and services. This strategy has been used
by several online retail and grocery stores incorporating their business activities across the
country (West, Ford and Ibrahim, 2015). This strategy aid in gaining competitive advantage and
also leads to the growth and development of the organisations.
According to Baymard Institute, a web research company in the UK, 67.45% of online
shopping carts are abandoned. After analysing the situations and from the customer survey, it
was identified that 56% of customers presented with unexpected costs (Why Online Retailers Are
Losing 67.45% of Sales and What to Do About It, 2013). Unexpected cost refers to the
transformation in cost after putting the particular product in the shopping cart. Unexpected costs
includes shipping costs, additional fees, convenience charges, tax, etc (Hofman., 2016). This
impacts on customer purchase behaviour. When customer found that they have to pay more

amount they see before, they tend to avoid shopping from the particular website and check on
another website. For example, if a customer wants to buy a television online from Best Buy. The
price he or she before transaction was £300. When consumer about to pay for the television, he
or she notices subtle changes in price and it was increases to £325 due to shipping and
additional cost. He or she checks the same product on Amazon. The price was £300, same as on
Best Buy. But Amazon offers free shipping and no other additional charge was taken. Thus, the
customer makes purchase from Amazon. The unexpected costs impact impacts on customer
purchase behaviour.
Online mode of shopping boons the market economy of United Kingdom. Majority of
population prefer and do their shopping online (Song and Lai, 2017). There are various benefits
and drawbacks which are associated with online shopping. These includes quality, price and
authenticity of products and services offers by many retailers selling products online. Price
influences the customer purchase behaviour greatly. Many websites charge additional cost or
fees at the end of transactions which are based on their terms and conditions. This impacts on the
purchase behaviour of the customer and they tend to avoid the purchase through online mode.
Thus, this implies that sharing economy helps in growth and development of the market
economy of the country and also assist in increasing the online transactions adequately.
There are certain drawbacks associated with the online transactions. It depends the
behaviour of customer whether he or she able to pay more price at the end of the transactions or
not. In order to sustain in the competitive environment, the business organisations incorporating
their business operation in United Kingdom, implemented certain strategies that helps them to
sustain in the competitive environment (Al-dweeri and et.al., 2017). Online shopping is
preferable in United Kingdom as customers finds and gain interactive offers, discounts and
effortless shopping experience. After analysing the policies of multiple retail online shopping
website, it was identified that the shopping websites have implemented various tactics and
techniques in order to capture the attention of the customers. The price strategies implemented
by the organisations helps the management to increase their trade and transactions.
Further, it impacts on the customer purchase behaviour negatively as majority of
customers leave the shopping cart after seeing additional fees. From the analysis of the

customers, many customers does not influence by the paying any additional fees or charge. They
found online shopping time saving and effortless and they remain unaffected by the additional
fees. Online shopping represents a huge amount of the UK’s yearly spending, with over 80% of
consumers saying they made an online purchase in 2016.
Organisations and online retailer sets the prices to attracts the customers and assumed
that customer will be attracted towards their price (Ogilvie and et.al., 2016). This will impact on
the customer purchase behaviour and he or she will purchase the particular product and
commodity. This implies that game theory plays vital role in customer purchase behaviour and
pricing strategies made by the organisations.
Though these strategies helps the management to survive in the competitive environment
and also provides a benchmark for their future growth and success (Hatch and Howland, 2015).
Some of the additional charges includes taxes which are mandates by the parliament of United
Kingdom. Thus, both management of organisation and customers needs to be informed about the
additional charges so the brand reputation can be maintained and it can sustain the competitive
environment. Thus, this implies that in online transactions a rational consumer on average pays
more at the end of a transaction than at the beginning. The customer purchase behaviour depends
on the price and the quality of product offers by the online retailers (Dunne, Lusch and Carver,
2013). The buy it now prices is always lower than the end price. The game theory states that one
person will gain results while other person will lose. In this context the organisation and online
retailers are on winning side and customers are on loosing side (Varley, 2014).
The buy it now prices does not include any form of taxes and additional charges thus
helps in attracting customers towards purchase of the products and services. Customers tends to
attract towards online shopping because of attractive prices of commodities and products. When
they completing their transaction process, customer finds additional charges. This impact on their
purchase behaviour and they determined that at this price the product can be available at the
physical store (Varley, 2014). Thus, they quit online shopping which creates a loss to the online
retailers. In accordance with this context, it can be said that in online transactions a rational
consumer on average pays more at the end of a transaction than at the beginning.

From the above essay, it can be understood that due to additional fees, costs and charges
which are associated with the products and services, the end price of product increases. In this
context, the game theory proposed by Patrick A McNutt has been discussed in this hypotheses.
Due to price tactics and strategies implemented by the organisations and online retailers,
consumer attracts towards the products and services which eventually cost him extra after
completing the transaction.
These strategies are developed by the online shopping websites and organisations in order
to compete in the market economy of United Kingdom and increase their profitability and
productivity. Further, the hypothesis shows the factors that impacts on the purchase behaviour of
the customers. The additional charges including in the final price of the products and services.
This increases the final prices or end price of the commodity and customer have to pay extra in
order to purchase the particular products and services.

REFERENCES
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