An executive summary for managers and executive readers can be found at the end of this article

A survey of emerging technologies for pricing new-to-the-world products

Heather Bergstein Hooman Estelami
Research Associate, Fordham Pricing Center, Graduate School of Business, Fordham University, New York, NY, USA Assistant Professor, Fordham Pricing Center, Graduate School of Business, Fordham University, New York, NY, USA Keywords Pricing, Product development, Marketing research Abstract New-to-the-world products are innovations that represent leapfrogging advancements in product design, which often result in significant gains in consumer utility. Such new products are critical not only because of their ability to become a means for market share gain and revenue growth, but also because they often change the competitive landscape of the markets they are launched in. A fundamental concern in developing new-to-the-world products is the appropriate pricing of these products. In this paper, we will first review the traditional methods used in determining the prices of newto-the-world products. We will then profile emerging technologies that have found extensive use in recent years and are helping accelerate the pricing process of new-tothe-world products. The paper will conclude with a discussion of the implications of these emerging technologies on the practice of pricing.

New product development

Introduction Technological and societal forces are propelling change in the methods used to develop and manufacture new products. New product development has traditionally represented a company's diversification attempts in improving existing products to meet changing consumer needs. However, a unique category of new products, the ``new-to-the-world'' product, is becoming much more central in ensuring long-term corporate success (Cooper, 2000; Urban and Hauser, 1993). New-to-the-world products are innovative new products that due to their unique attribute mix or technological features have provided leapfrogging increases in consumer utility, to the point that new product categories have emerged as a result of their introduction. Examples would be the Sony Walkman (introduced in 1979), the 3M Post-it Notes (introduced in 1980), and the first Xerox photocopier (introduced in1952). Such new-to-the-world products have become critical in maintaining revenue levels and market share in increasingly competitive markets. Moreover, the combination of new technologies and competitive pressure is forcing product managers to aggressively pursue, develop, and launch new products in record times (Perrault and McCarthy, 1997). The implementation of this practice is evident in the significantly shortened product development time of innovative organizations such as 3M, Apple, and GM, whose product development cycles are now measured in months rather than in years (Quittner, 2002; Whiting, 2001). At the same time it is estimated that, of the approximately 16,000 new products introduced each year, less than one in ten are successful (Ayers et al., 1997). It is therefore no surprise that a growing product management concern is in finding ways to reduce the risks
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Maintaining revenue levels

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associated with new product launches, by improving the quality of related decisions. Correct pricing of the product One of the fundamental decisions which helps determine the success of a new-to-the-world product is the correct pricing of the product on market introduction. While traditional methods of setting prices have been used for decades, the emergence of new information-based technologies has enabled new approaches to this fundamental aspect of new product development. Electronic commerce and communications, and the creative use of the Internet now provide brand managers with the ability to quickly gauge the potential for new product success, at speeds that far exceed traditional market research techniques. The tools of the new economy, for example, enable test marketing of new product prices, segment-based pricing, and instantaneous competitive price benchmarking, at a fraction of the time and cost associated with these activities in traditional new product development practice (Aaker et al., 2001; Cortese and Stepanek, 1998; Nelson, 1998). The emerging technologies are also enabling consumers to better visualize and experience new products prior to their introduction to the marketplace, and electronic delivery has made it possible for products to be created, modified, and delivered in record times. The objective of this paper is therefore to provide an overview of the emerging technologies utilized in the pricing of new-to-the-world products. We will first examine the traditional approaches to new product pricing. We will then examine how the practice of new product pricing is evolving due to the emergence of information-based technologies. The paper will conclude with a discussion of the potential impact of these technological advancements on the practice of pricing in the decades to come. Traditional approaches to pricing new products The notion of a ``new'' product can take on many different forms in the product management arena. Most products introduced to the market are not necessarily entirely new. Some may be considered new, simply because the company itself has had no prior experience marketing it. Many other new products are minor modifications or improvements to existing product designs, which do not necessarily represent leapfrog advances in the product itself. However, a unique category of new products, known as the new-tothe-world product, is one that has intrigued practitioners and academics for decades (Moreau et al., 2001; Urban and Hauser, 1993). A new-to-the-world product is a novelty, which has no clear substitute on the market at the time of introduction. A prime example would be the Sony Walkman, introduced in 1979. At the time of its introduction, no existing product could provide high-quality portable stereo audio. The introduction of the Walkman not only helped serve a strong latent market demand, but it also provided Sony with a profitable pioneering advantage in the category, and the association of the Walkman name with the category it helped create. One of the biggest challenges facing developers launching such new-to-the-world products is the determination of the launch price. The price of the new-to-the-world product largely depends on the incremental utility provided by the unique aspects of the product, over any comparable old technologies. This can be formalized as: Pnew Pcomp Vnew ; where Pcomp is the comparable price of the product with old technologies (e.g. a portable cassette player), Vnew represents the incremental value the consumer places on the unique features of the new-to-the-world product (e.g. high-quality stereo sound, light weight, etc.), and Pnew is the fair market price
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Not necessarily entirely new

of the new-to-the-world product. While Pcomp may be obtained through surveying comparable old-technology product prices, the more challenging task has been in quantifying the incremental value of the product, Vnew. The product's unique worth Traditional approaches for determining the product's incremental value (Vnew) A wide spectrum of approaches has been used by product managers and price setters to quantify the new product's incremental value (Vnew). At the one extreme, many companies launching new-to-the-world products primarily use intuition to determine Vnew (Monroe, 1990; Urban and Hauser, 1993). The subject is discussed internally, and a price is determined based on what the general opinion of the management team is on the product's unique worth, keeping in mind the production costs of the product. A price has therefore been determined without detailed consultation with potential buyers. Interestingly, a survey of pricing practices show this to be a popular approach for pricing new products (Covin et al., 1990; Shim and Sudit, 1995; Posnak, 1991). Clearly an intuition-based approach to new product pricing may not accurately represent the product's true price potential. Therefore, more systematic approaches relying on formal processes of market inquiry would be needed. These approaches take on both qualitative and quantitative forms. In order to accurately determine Vnew, methodical approaches utilizing representative samples of consumers are often used (Monroe, 1990; Nagle and Holden, 1995; Urban and Hauser, 1993). Three general approaches have traditionally been heavily used in this area: (1) Direct questioning. Direct questioning involves communicating with the consumer, to directly elicit the level of value the consumer places on the new product. On a qualitative basis, methods such as focus groups and open-ended interviews are commonly used. However, these techniques do not provide quantitative measures in order to precisely locate the appropriate price range or attached value of the product. Hence, a quantitative approach utilizing consumers' self-stated prices is often used to determine what a reasonable price for a new product should be. Often, the task begins with a description of the new product being given to the consumer, or the actual presentation of a prototype. The consumer is then asked to respond to a series of four specific questions, often referred to as the price sensitivity meter (Monroe, 1971, 1990; Van Westendrop, 1976):
.

Formal processes of market inquiry

At what price would you consider the product to be so inexpensive that you would have doubts about its quality? At what price would you still feel the product was inexpensive yet have no doubts as to its quality? At what price would you begin to feel this product is expensive but still worth buying? At what price would you feel that the product is so expensive that regardless of its quality it is not worth buying?

Plot range of prices

It is believed that the distribution of these consumer responses is reflective of market demand and quality inferences made for the product at various price points; the cumulative distribution of consumer responses to the above four questions is used in order to plot the range of prices most consumers would consider acceptable, and to determine the most favorable price point for launching the product (Monroe, 1990). It is important to note that despite its simplicity, the use of the price
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sensitivity meter is known for certain response biases, and at times, the consumers' elicited responses may not necessarily represent their actual response behavior when faced with real purchase decisions. (2) Conjoint analysis. Since eliciting prices directly, as in the direct questioning approach, is likely to increase response biases, an alternative approach that does not require soliciting prices is to provide product information, including price, and to instead elicit consumer preferences through conjoint analysis (Green and Wind, 1975). In conjoint analysis, the consumer is presented with a series of hypothetical products, and asked to rate or rank each hypothetical product. The hypothetical products presented systematically vary in terms of the key attributes (e.g. size, durability, price, etc.) The objective of conjoint analysis is to estimate the impact of variations in these product attributes (e.g. change in price from $100 to $150) on consumer utility. Through this, conjoint analysis results can be used to estimate shifts in consumer preferences at various proposed price points. This would enable the product manager to determine an optimal range for launching the new product. (3) Market experimentation. A limitation of both the direct questioning and the conjoint analysis approaches is that the link between consumers' self-reported responses and their actual purchase behavior has been found to be weak due to ``preconscious drives'' that are difficult for the respondent to express (Aaker et al., 2001). As a result, price response estimates obtained from these two approaches may have limited external validity in real markets. A practical solution would therefore be to take the data collection approach one step further by actually experimenting with various price points in the marketplace. In market experiments, the product is introduced in various test markets. These test markets may for example be different cities with similar demographics. Each test market experiments with a different price point. The test market results would then help identify an optimal introductory price of the new product, by providing an estimate of the sales levels experienced at various price points. Several risks however plague the use of test markets for new product pricing, including cost, timing, and competitive lead. An array of intelligence gathering systems Determining comparable price points (Pcomp) Traditional approaches for finding the prices of old-technology products comparable to a new-to-the-world product rely on basic competitive intelligence gathering methods. Competition-based pricing utilizes surveys of similar products' prices seen in the marketplace (e.g. portable cassette players) to determine an appropriate estimate for the comparable price point, Pcomp. The data can be obtained through an array of intelligence gathering systems. For example, mystery shoppers can be deployed to identify public and negotiated prices for comparable products. Information can also be obtained from customers who may be in touch with competitors' sales offers, and from one's own sales force. Another less conventional approach relies on the use of inside information, obtained from existing employees working for the competitor (Lavelle, 2001). Clearly such an approach would be considered as corporate espionage and if established in a court of law, is legally prosecutable. The combination of competitive intelligence sources would therefore allow one to take an average of an appropriate sample of prices for comparable products. This can then be used as an estimate of Pcomp.
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Review the emerging technologies

New technologies utilized for determining incremental value (Vnew) In this section, we will review the emerging technologies that are used for determining the incremental value consumers place on a new-to-the-world product (Vnew). These new technologies have not only proven their effectiveness in enhancing the quality of pricing decisions for new-to-theworld products, but are also likely to become far more widely used by price setters as the cost and perceived complexity of the technology decrease. Figure 1 provides an outline of some of these emerging technologies, to be discussed below. Emerging direct questioning technologies While traditional pricing research methods yield valuable information, such as consumer preferences and price thresholds, the associated cost and timeframe places limits on the reactive abilities of new product developers. Web-based technologies, on the other hand, are revolutionizing the process of pricing research. For many companies, digitizing consumer and price research means utilizing e-mail surveys and online focus groups to measure consumer reactions to new products.

Online surveys

Online surveys are conducted by sending surveys in a digital format, through consumer e-mail (Bowers, 1998; Cross and Neal, 2000; Stevens, 2000). Initial benefits appear to be twofold: (1) immediate reductions in data collection costs, and (2) drastic improvement in data collection speed (Aaker et al., 2001; Whiting, 2001). These advantages are obtained since the use of data collection software eliminates the need for photocopying and distribution of raw surveys, and also automates the inputting of the collected data into electronic databases for subsequent data analysis, without any intervention from a data entry clerk (Bowers, 1998). It has been estimated that conducting an online survey may cost only 50 percent of what a traditional pencil-and-paper survey would cost, and may take half the length of time to compile (Bowers, 1998; Whiting, 2001). While these are highly desirable improvements obtained due to the

Figure 1. Emerging technologies for new product pricing

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utilization of the Internet, emerging evidence suggests even more significant benefits. It has been found that consumers' responses and their interactions tend to be much more honest and elaborate in the Internet medium than in traditional pencil-and-paper surveys. As a result, an added benefit has been richer and more detailed consumer responses (Gilley and Wolfinbarger, 2001; James, 1999). More involved and more truthful Two factors that facilitate this trend are respondent anonymity and set response periods. The anonymous nature of completing a survey at home, alone, without the immediate presence of a social group, allows the respondents to be more involved and more truthful in their response behavior; set response periods give consumers specific deadlines for completing the survey, while allowing them to provide their response at their own convenient time. An added benefit of using the Internet as a basis of pricing research is that the series of questions utilized in the survey can be adaptively modified as the respondent proceeds through the questionnaire (Dillman, 1999). This enables more accurate estimation of key constructs of interest, such as price sensitivity and price knowledge, for which the scale may dramatically vary across consumers (Estelami, 1997; Estelami and Lehmann, 2001). Online focus groups are gaining acceptance as valid means for collecting consumer reactions (Cross and Neal, 2000; Stevens, 2000). In an online focus group, various participants are connected through the Internet to a central moderator. Their thoughts and reactions to new product concepts are then collected through the exchange of voice, text, graphics, as well as through video transmission from each participant's location. The focus group moderator controls group interactions and feeds questions to guide respondents as in a traditional focus group. However the skills needed are quite different from those required in traditional settings. It has been estimated that conducting a focus group online may cost about half of what a traditional focus group would cost (Bowers, 1998; Gilley and Wolfinbarger, 2001). In addition, compilation of data takes place automatically through online transcripts, a significant time-saving advantage over traditional methods. Nevertheless, online focus groups lack face-to-face contact and the group interaction associated with traditional focus groups. This is not seen to be a significant disadvantage, and may be weighed against the following positive aspects of online focus groups. Online focus groups conducted in real-time facilitate much quicker access to consumer opinions, while a traditional focus group may take weeks to organize and run. This is especially important in light of the short product development time of new products, and quick decision making that is needed for pricing of new products. Online focus groups typically can be arranged for, and carried out within a few days. Moreover, since moderators have considerably higher levels of control over the flow of discussion, due to the decentralized location of the participants, online focus groups tend to be less affected by group biases by allowing participants to ``hide behind their computer screens'' and respond with ``honest and spontaneous'' answers (Aaker et al., 2001). An emerging variation of online focus groups is bulletin boards which are not yet widely used, and are fighting for credibility in the marketing research community (Cross and Neal, 2000; James, 2002). They differ from online focus groups in that they provide an alternative to real-time interaction. Posted on secure Web pages, bulletin boards are given a set life of typically three to five days, during which moderators post questions and consumers respond. The key difference between the two qualitative methods is the timeframe; to use a bulletin board, researchers must be able to collect data
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Thoughts and reactions

Online focus groups

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over the specified time period, rather than instantaneously. Whatever the case, information is more readily available in a shorter amount of time than through traditional methods. Bulletin boards are said to generate several times the volume of data collected through online focus groups. However, this method is still in its experimental phases (James, 2002), and limited in its application to pricing research, especially for new-to-the-world products. Determining price thresholds Application of emerging direct questioning technologies in pricing. Online direct questioning techniques are used in various forms of pricing research, in much the same way that traditional direct questioning is currently used. The same types of questions (e.g. price sensitivity meter) and product profiles that are used for determining price thresholds and reservation prices in pencil-and-paper tests are integrated within electronic forms seamlessly. One benefit of moving to online methods is the ease of modifying the information presented to respondents and adapting the questions based on past responses (Dillman, 1999). This form of adaptive questioning would be practically inconceivable in pencil-and-paper methods. Electronic forms can be automatically modified and calibrated for individual respondents as needed without costly charges or intervention during data collection. This is especially important in pricing applications such as the price sensitivity meter where the appropriate range of the response scale may significantly vary from one consumer to the next. The recruitment for Web-based pricing research participants varies according to the research company performing the tests. Much of the recruitment is performed strictly online, where a preliminary questionnaire asks respondents for basic demographic information. Those who complete the form are automatically added to a permanent database, for future use. In some cases, respondents are matched to appropriate research projects based on this preliminary information (Bowers, 1998). In other cases, any and all visitors to a Web site can browse and complete surveys. Using the Internet for direct questioning in pricing research presents companies with unique opportunities in conducting pricing research for new products. For example, in the automotive industry, manufacturers often have to await consumer reactions after the production of a first prototype. This prototype is then made available for inspection by a sample of consumers, and their reactions may then be used to modify the products' physical specs, as well as its marketing mix, such as promotion and price strategy. However, General Motors has been able to harness the new technological capabilities of the Internet in developing early intelligence of consumer reactions to a new product's marketing agenda including price (Whiting, 2001). By using online methods, GM is able to present a representative sample of consumers with streaming video of proposed designs, as well as promotional material and expected prices. This has allowed the company to not only innovate new products at the fastest rate in the US auto industry, but to also cater and modify its marketing and pricing strategy, based on consumers' timely reactions to the new product concepts. In addition, due to the large efficiencies gained, the use of Internet-based research methods have reduced GM's data gathering costs considerably. The use of the technology is also increasing the external validity of GM's research findings, due to the ability to engage a large number of geographically dispersed consumers, without undertaking the travel costs of transporting respondents to a central location (Whiting, 2001). Emerging conjoint analysis technologies Conjoint analysis is one of the most popular methods for new product price determination. In conjoint studies, consumers are presented with a series of
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Basic demographic information

Modify the products' physical specs

product prototypes or descriptions, often referred to as profiles, and asked to either rate each profile, or rank the various presented product profiles based on their preferences. The pattern of their responses is then used to estimate consumer value for the various product attributes, including price. The Internet administration of conjoint studies takes place in similar ways as in online surveys. Respondents are recruited from targeted geographic and demographic backgrounds and administered the conjoint profiles. This enables quick access to respondents, more representative sampling of the population, as well as significant cost reduction in data gathering (Stevens, 2000). Therefore, some of the benefits gained by using the Internet as a basis of conducting conjoint pricing studies are very similar to those obtained in online surveys, outlined earlier. A basis of data collection However, a significant potential gain of using the Internet as a basis of data collection for conjoint studies is in the determination of an optimal research design (Aaker et al., 2001). The major drawback with the traditional penciland-paper approach of conducting conjoint analysis has been the fact that with a large number of product attributes, the respondent's task quickly becomes overwhelming. For example, if the new product being considered has two attributes, each at three levels each, there are 32 or nine profiles to be examined by the respondent. However, if instead of three, there were five product attributes to examine, the number of profiles to be examined would explode to 35 or 243. This clearly would be an overwhelming task for any respondent. Methods such as hybrid conjoint, fractional factorial designs, and adaptive conjoint help reduce the task size by either eliminating certain redundant profiles, or by adjusting the series of profiles based on a respondent's earlier responses. Through these approaches, online conjoint models can administer conjoint studies of up to 15 attributes at nine levels each (Stevens, 2000). Application of emerging conjoint analysis technologies in pricing. An example of the use of online conjoint analysis in new product pricing is the initial development of the i-Zone instant camera by Polaroid, a company that some analysts considered to have stagnated in its new product development initiatives (Wasserman, 2001; Whiting, 2001). Polaroid employed Webbased conjoint analysis with target respondents aged 13-18, in order to determine whether to add more features to the product (and increase the price of i-Zone from $17 to $25), or leave the i-Zone at a target cost of $17. An additional question was that if they were to add features, which features should be added and which left out? Polaroid, with the help of MIT, created a Web site to collect the required data. While recruiting was performed through mall intercept techniques, in order to secure parental permission for the research, respondents participated via the Web. The analysis was performed by displaying a model of the camera, and asking respondents to add features from given list. A counter displayed increases or decreases in the price of the camera as features were manipulated. Each feature was verbally described and visually presented as it was added; helping respondents decide what was worth the additional cost. The results concluded that targeted teens wanted a ``cool'' camera, rather than a featureheavy model. The company therefore determined the optimal price position to be at the lower end of the spectrum. Online conjoint analysis is one of the newest and most complex areas of market research, with great potential for use in setting prices for new-to-theworld products. While conjoint analysis is well suited to online distribution, key technological barriers are preventing its widespread use and the possible cost savings associated with this method (Stevens, 2000). The benefits of
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Online conjoint analysis

utilizing conjoint analysis online can only be realized with sophisticated technological knowledge by the marketing research staff, and adequate technical support. An example is the use of fractional factorial designs to reduce respondents' task size. While it is true that conjoint models can exponentially increase the number of profiles, and that fractional factorial designs can be used to deal with this problem, there are few programmers who can program conjoint models using fractional factorial designs. The few software programs that can help with the process are not fully developed. In addition, HTML is limited in its abilities to handle such complex programming, and other computer and Internet languages must be tested and cleared for use with conjoint models. Several software manufacturers are addressing the need for standardized online conjoint software, and online utilization of conjoint analysis is likely to significantly grow in the near future (Stevens, 2000). Test marketing Emerging market experimentation technologies Test marketing, via brick-and-mortar stores, is an institutional practice among the leaders of the consumer products industry. Traditionally, test marketing is conducted by selling and marketing new products in specified markets that are known to be representative samples. Marketers test price levels, promotional mixes, packaging, and branding, among other variables. The sales data are then used by marketers and product developers to project performance levels for the new product, and to assist in gauging consumer reactions to the variables mentioned above. Although considered a key method of optimal price determination, traditional test marketing is costly, and requires significant timelines and data capturing resources in order to follow the patterns in consumer buying behavior. Competitive retaliation, such as promotional activity, can be disruptive to the accuracy of reported results. Moreover, as product lifecycles shorten, developers cannot afford to spend the requisite months performing tests. It is these notable weaknesses of traditional test markets that have made Internet-based test marketing an attractive option for price setters. The very use of the Internet to communicate to today's consumers has translated into the added ability to conduct online test markets. As we have seen with direct questioning and conjoint studies, initial benefits of moving research online are cost and speed. The same is true for online test marketing. Online test markets for companies such as Procter & Gamble are associated with cost reductions to as low as one-tenth that of traditional test markets, and a data collection speed which can be as high as four times quicker (Warner, 2001). Online testing is primarily performed to reduce risks of national product launches. However, online test markets often provide richer data than traditional test markets by providing additional pieces of information such as demographic information about each subject, and feedback and reactive responses from respondents, as well as the opportunity to conduct follow-up research with participants. The most common method of test marketing online is through company Web sites. Many consumer product companies have performed test markets at their own branded and non-branded Web sites (Cross and Neal, 2000). These sites can be stocked with actual new-to-the-world products, and allow consumers to purchase such items. In situations where consumers are not given the opportunity to purchase products, they are typically given a section in which they can make suggestions on the types of products they would like to see (Warner, 2001). The use of online test markets for pricing new-to-theworld products is also enhanced through the use of ``cookies'' placed on the
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Online retail environments

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user's computer, which then track online consumers' Web usage patterns. This enables further manipulation of the variables being experimented with through the online test market. Moreover, the use of online retail environments has now facilitated experimentation with price and segmentbased price tiers. One of the leaders Application of market experimentation technologies in pricing. Proctor & Gamble, highly recognized for its test marketing abilities, has emerged as one of the leaders in the online testing revolution (Heun, 2001). Through the development and use of both branded and non-branded sites (e.g. www.whitestrips.com, www.beinggirl.com, www.tide.com, www.pg.com), P&G has tested products and prices, gauged response, and gained new product ideas, all through direct contact with their consumers. P&G recently added a simulation site (www.consumeraisles.com) to the list of over 70 Web sites the company manages (Gaffney, 2001). The launch of Crest Whitestrips was a first foray into the use of virtual testing. The product, introduced in the year 2000, is a typical new-to-the-world product. It was due to be sold under the Crest brand umbrella; however, priced at over $40, it was at a significantly higher price point than any other Crest product. This high price point was a sticking point for Whitestrips managers, and it was realized that market testing was necessary. A low-cost strategy was devised to provide the same type of data found in a test market utilizing the Internet in addition to traditional test marketing: To distance the new higher-priced product from others under the Crest name, P&G created whitestrips.com, where the new product was test marketed online, over a period of nine months. An added benefit received was the data collected on the diverse customer base attracted through the Web site, offering demographic insight used for long-term testing. In addition, by using the Internet as a listening tool, P&G has been able to funnel the accumulating information back into the new product development process for future products (Gaffney, 2001). Emerging technologies for determining comparable prices (Pcomp) A required component of new product pricing is comparable price benchmarking, whereby the price of the new-to-the-world product will partially be based on comparable old-technology offers in the marketplace. As discussed earlier, this assists in the identification of the Pcomp part of the equation which further determines the new product's market price. As early as 1998, price comparison ``bots'' (e.g. mysimon.com, carbytel.com) have been making their Internet debut and providing value to both consumers and price setters as research tools. Bots, or price comparison tools, can function in two ways. The first type of price comparison tools are independent bots, such as mysimon.com, which enable the consumer to search the Web for a particular product of interest. The search can be performed by product name, category, and price; the function of the bot is simply to scour the Web for the product and provide a comprehensive list of prices by retailer, and additionally provide product specifications and reviews. However, several flaws have been noted with regard to independent bots, including misinformation and providing irrelevant information (Green, 1998). Retailer-run bots, the second type of price comparison tool, are similar in purpose, but perform the search task in a more selective and predetermined way. These bots will pull up competitor prices on the product a consumer searches for, and typically, the price offered by the searching site is lower. An example of such an online retailer is Booksamilion.com, an online bookseller. As soon as a consumer punches a title into the ``search''
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Price comparison

bar, prices from Amazon.com, BarnesandNoble.com as well as other sites are displayed for the consumer (Crockett, 2001). Competitive price gathering In addition to several sites dedicated strictly to competitive price gathering for the consumer, retailer-run pricing tools are on the rise. These tools will present the consumer and price setters with prices offered by competitor sites, and work to establish trust and loyalty to gain repeat business. These tools are clearly advantageous for pricing research. Where marketers previously shopped the market, they now simply shop the Web, as if they were consumers. The large amount of information presented on the Web enables competitive benchmarking from the marketer's desk, giving instant reports of what is out there and how much the competition is charging for it. Conclusion Pros and cons of emerging technologies The online revolution's impact on pricing research techniques has fueled a developing consensus among marketers that electronic means may be more advantageous than traditional methods. As discussed previously, there are several advantages and disadvantages to performing pricing research via new electronic methods, especially for new products. The advantages include:
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Electronic means may be more advantageous

significant gain in data collection time through instant access to relevant information; higher quality response from respondents; reduced costs resulting from lower labor hours, lower respondent recruitment fees, reduction of travel expenses, and use of automated electronic forms rather than pencil-and-paper instruments for data collection; the ability to adapt questionnaires based on the respondents' previous responses, and segment profile; the ability to perform price discrimination and testing based on consumer profiles; reduction in geographic bias arising from convenience samples commonly used in traditional market research.

. .

Important to acknowledge certain limitations

However, it is also equally important to acknowledge certain limitations when utilizing the mentioned emerging technologies for pricing research. Many of these limitations are similar to concerns facing companies who are currently using the Internet for business processes and market development. These include:
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Sample bias when using electronic methods may produce results which may not be representative of the mass markets, especially those who do not have access to the Internet on a regular basis. Some of the technologies mentioned (e.g. online fractional factorial conjoint analysis) are still in the early developmental stages, and therefore may not yet be cost-effective for most organizations. The quality of the respondent pool may be suspect if respondents are not recruited through a controlled method to ensure population representativeness.

Innovative use of new technologies It is important to note that few companies are currently relying solely on electronic means of pricing research, due mainly to the fact that some of the mentioned methods are gradually gaining acceptance. However, it is true to
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say that most, if not all, large consumer product companies have a Web presence. A Web presence is typically considered to be a Web site which represents the company, its products, culture, and fosters constant communication with customers and non-customers. The value of an online presence is two-fold: new consumers may discover the brand, and current customers can be communicated to directly. Harnessing the power of the Web means utilizing this presence, and other pricing and market research techniques to find sources for adding value to the product. Power of conducting experiments We have used Proctor & Gamble as an example of a company that is utilizing traditional and new methods of research to find sources of value for its customers. P&G has successfully combined online test marketing and traditional testing to launch Crest Whitestrips, and has additionally added a large-scale test market arena for all new product ideas. Their latest foray, called ``try and buy'', is found at P&G.com, and enables consumers to purchase products before they are sold in stores. Consumers can give feedback, and express ideas and opinions through the Web site. P&G has recognized the power of conducting experiments with new product concepts, prices, and packaging through the Web. General Mills has also become a pioneer in Web research, moving about 60 percent of its consumer survey work online. The company which until a few years ago used to rely solely on phone and mail surveys for all research, has now eliminated the high cost associated with these methods by moving a significant amount of its research online. This has allowed General Mills to be able to better support those areas of market research, such as taste tests, which would by design have to rely on traditional methods of data collection (Whiting, 2001). Implications for pricing practice Needless to say, the power of the new technologies can not only be harnessed for determining prices of new-to-the-world products, but can also be used for other areas of pricing research and practice. By mobilizing multiple outlets for consumers to purchase just about anything they need, e-commerce has not only influenced consumer price sensitivity for new-to-the-world products, but has also put into question traditional pricing practices. The emerging pricing practices of marketers may now need to relate to a quickly evolving marketplace. The Internet brings about a revival of negotiated pricing, characterized by rapid price reductions, combined with heavily promoted products. Consumers are beneficiaries of this technology through the use of Internet price comparison tools and the large array of outlets from which they can purchase online. True market value reflection By utilizing net-based markets in combination with consumer bargaining techniques, product prices will potentially merge to levels reflecting actual demand, and more importantly, reflect true market value (Cortese and Stepanek, 1998). The managerial implications seen in this environment are best illustrated through three points: (1) utilizing observed consumer bargaining behavior as a pricing tool; (2) developing price discrimination strategies based on patterns of purchasing behavior; and (3) dealing with the challenge of connecting value and price for traditional consumer products markets. These are outlined in more detail below:
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Consumer bargaining as a tool. Increasing power is being given to the consumer when determining the price to be paid for a product, either
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online or in traditional retail settings. ``Name your own price'' has become a mainstream movement, and consumers are responding positively to new-found power when purchasing airline tickets, computers, and even groceries. The rise in popularity of auction sites, such as eBay and Priceline, represents a huge opportunity for researchers and price setters alike to attack the oldest pricing questions with renewed vigor. Questions such as: ``What is this product worth to the consumer?'', ``What is the consumer willing to pay for this item?, and ''At what level do reservation prices take effect?" Bidding and purchasing behavior data can be pulled from observations of consumer behavior on auction sites, with the potential of gaining a better understanding of the perceived value of various products to the consumer. E-commerce facilitates price discrimination
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Price discrimination. Price discrimination is a powerful tool which involves using different prices for the same product for different consumer segments. E-commerce facilitates price discrimination in a variety of ways. Cookies, which are used to identify individual customers online, can now trigger customized product assortments at prices set by the marketer. Examples of companies utilizing such pricing technologies are travel Web sites (expedia.com), clothing retailers (jcrew.com), and most often, electronics retailers (egghead.com, amazon.com). Data is collected in an instant, and much like surveys that present a sequence of questions based on the respondent's previous responses, prices are altered or shown based on past purchase history or surfing behavior. Managers therefore have the ability to identify consumer profiles, with purchasing behavior as a prime area of distinction. By developing a price discrimination strategy for each consumer profile, the emerging technologies can be used to optimize profitability. Dealing with the challenges of traditional consumer products. Utilizing new technologies in the traditional consumer products arena is more challenging, as the methods for researching and price experimentation have not yet fully evolved. Brick-and-mortar retailers, such as grocery and drug stores, are primary shopping venues for traditional consumer products. These environments currently do not lend themselves to technological upgrades easily, and therefore may be slow to adapt to new methods that exploit technological advances. However, considering the speed with which many new technologies have changed the buying process, it may not be long before consumer product markets are also influenced by the powers of online marketing and online pricing research technologies.

Primary strategies choice

The notion of consumer bargaining power, online auctions, and ``name-yourown-price'' will only become more accepted and expected by consumers as they increase their use of technological advances available to them. The impact of this fact is bound to have a profound impact on the choice of pricing strategies available to price setters in the near future. While price may continue to be the key element of competitive strategy, intensified price-based competition may bring markets ever closer to efficiency. In such a fastchanging environment, reliance on old and slow pencil-and-paper price research technologies may prove costly for those who choose not to embrace the power of emerging technologies available for conducting pricing research.
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Bowers, D.K. (1998), ``FAQs on online research'', Marketing Research, Vol. 10 No. 4, pp. 45-8. Cooper, R. (2000), ``Strategic marketing planning for radically new products'', Journal of Marketing, Vol. 64 No. 1, pp. 1-16. Cortese, A. and Stepanek, M. (1998), ``E-commerce: goodbye to fixed pricing?'', Business Week, May 4 , pp. 71-84. Covin, J.G., Prescott, J.F. and Slevin, D.P. (1990), ``The effects of technological sophistication on strategic profiles, structure, and firm performance'', Journal of Management Studies, Vol. 27 No. 5, pp. 485-511. Crockett, R. (2001), ``Let the buyer compare'', Business Week, No. 3747, September, p. 10. Cross, R. and Neal, M. (2000), ``Real-time and online research is paying off'', Direct Marketing, Vol. 63 No. 1, pp. 58-62. Dillman, D.A. (1999), Mail and Internet Surveys: The Tailored Design Method, John Wiley & Sons, New York, NY. Estelami, H. (1997), ``Consumer perceptions of multi-dimensional prices'', in Brucks, M. and MacInnis, D.J. (Eds), Advances in Consumer Research, Vol. 24, Association for Consumer Research, Provo, UT, pp. 392-9. Estelami, H. and Lehmann, D.R. (2001), ``The impact of research design on consumer price recall accuracy: an integrative review'', Journal of the Academy of Marketing Science, Vol. 29 No. 1, pp. 36-48. Gaffney, J. (2001), ``How do you feel about a $44 tooth-bleaching kit?'', Business 2.0, Vol. 2 No. 7, pp. 126-7. Gilley, M. and Wolfinbarger, M. (2001), ``Shopping online for freedom, control, and fun'', California Management Review, Vol. 43 No. 2, pp. 34-55. Green, H. (1998), ``A cybershopper's best friend'', Business Week, April 23. Green, P.E. and Wind, Y. (1975), ``New way to measure consumers' judgements'', Harvard Business Review, Vol. 53, July-August, pp. 107-17. Heun, C.T. (2001), ``Procter & Gamble readies online market research push'', Information Week, October 15, p. 26. James, D. (1999), ``Precision decision'', Marketing News, Vol. 33 No. 20, pp. 23-25. James, D. (2002), ``This bulletin just in'', Marketing News, Vol. 36 No. 5, p. 48. Lavelle, L. (2001), ``The case of the corporate spy'', Business Week, November 26, pp. 56-8. Monroe, K.B. (1971), ``Measuring price thresholds by psychophysics and lattitudes of acceptance'', Journal of Marketing Research, Vol. 8, November, pp. 460-4. Monroe, K.B. (1990), Pricing: Making Profitable Decisions, McGraw-Hill, New York, NY. Moreau, C.P., Markman, A.B. and Lehmann, D.R. (2001), ``What is it? Categorization flexibility and consumers' response to really new products'', Journal of Consumer Research, Vol. 27 No. 4, pp. 489-98. Nagle, T. and Holden, R.K. (1995), The Strategy and Tactics of Pricing, Prentice-Hall, Englewood Cliffs, NJ. Nelson, M. (1998), ``Going once, going twice, . . .'', Info Week, November 9, pp. 1, 64. Perrault, W.D. and McCarthy, J.E. (1997), Essentials of Marketing, 7th ed., Richard D. Erwin Co., Chicago, IL. Posnak, R. (1991), ``Profits and prices'', Best's Review, Vol. 91 No. 10, pp. 47-50. Quittner, J. (2002), ``Apple's new core'', Time, Vol. 159 No. 2, pp. 46-52. Shim, E. and Sudit, E.F. (1995), ``How manufacturers price products'', Management Accounting, Vol. 76 No. 8, pp. 37-44. Stevens, B. (2000), ``Save money with online analysis'', Marketing News, Vol. 34 No. 23, pp. 27-8. Urban, G.L. and Hauser, J.R. (1993), Design and Marketing of New Products, Prentice-Hall, New York, NY. Van Westendrop, P.E. (1976), ``NSS price sensitivity meter a new approach to study consumer perceptions of price'', ESOMAR Venice Congress Proceedings, pp. 140-66. Warner, F. (2001), ``Girl, interpreted'', Fast Company, Vol. 49, August, p. 134. Wasserman, T. (2001), ``Polaroid stays in the picture with Fortune'', Brandweek, Vol. 42 No. 43, p. 4. Whiting, R. (2001), ``Virtual focus group'', InformationWeek, No. 848, July, pp. 53-8.

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This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present

Executive summary and implications for managers and executives

Online research a good thing treated carefully The Internet is changing the world of market research just as profoundly as it is affecting communications, buying and product delivery. And, just as with other aspects of marketing, there is a debate about the Internet's effectiveness as a research tool. One aspect of this debate is shown in the differing results obtained in public opinion polls conducted online when compared to those using the telephone or face-to-face interview. Just as a similar debate raged over the relative merits of telephone versus face-to-face interview, the use of the Internet for research is likely to be resolved by its practical merits as much as by the comparison of methodologies. And, whereas the previous debate focused primarily on quantitative research, the Internet can ``compete'' with established qualitative research methods such as the focus group. Bergstein and Estelami examine one application for Internet research the setting of prices for new-to-the-world products. In doing so the authors open up the application of Web-based research methods to a wide area of marketing and brand management. Indeed, the Internet offers to close the gap between direct response marketers' approach to testing and the brand management focus on research. Really new products and the problem pricing them New-to-the-world products present a pricing challenge since we have no external benchmark by which to assess the right price. We have an internal mark (how much it will cost to make the really new product) but consumer marketers know that ``cost-plus'' pricing is a weak way to arrive at the right price. Bergstein and Estelami describe how a really new product consists of two values the value of comparable ``old technology'' products plus the additional value to the consumer of the new technology. The Internet provides new ways to shorten (and cheapen) the process of establishing these values and hence the price of the new-to-the-world product. The first problem is the comparison with comparable or substitute products (old technology). The Internet, through price comparison Web sites, shopping bots and other methods, enables us to compare prices much more quickly and with more precision than was the case with traditional techniques. This isn't to say that the Internet can ever provide a total comparison but it does mean that expensive mystery shopper or other price research methods are replaced by a low cost desk research method. We get as accurate a price comparison far more quickly and at significantly lower cost. This however is the easy bit, gauging the additional value derived from a new-to-the-world product is more difficult whether conducted using the Internet or with traditional research methods. Researching the value of really new products Bergstein and Estelami identify four ways in which prices for really new products have been set: (1) intuition; (2) direct questioning; (3) conjoint analysis; and (4) market testing.

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Leaving aside intuition (which requires no research), these techniques can all transfer from traditional research to the Internet. In all cases there are gains in both speed and cost. Using online research reduces the cost of research (by up to 50 percent according to Bergstein and Estelami) and reduces the time from inception to result. So far so good. The question for marketers is whether these evident gains are compromised by reductions in reliability. A focus group can be constructed and conducted online but does the loss of interaction affect the quality of the results? And does this possible loss of reliability reduce the value of the results? Bergstein and Estelami point out that the skills needed for online focus groups differ and we might conclude that an online focus group, while similar to a traditional focus group, is really a different research method. In some cases the group interaction evident with traditional group research might be important to the study but in most focus group research such interaction isn't crucial and may in fact prove a hindrance. In the case of direct questioning and especially quantitative research, the Internet throws up a different problem sample validity and reliability. These problems have reduced as more people adopt the Internet but it remains the case that Internet users are better educated and from a higher income bracket. In new product research this may be less of a problem than in opinion research since really new products are more likely to appeal to and be bought by the market segment that uses the Internet. Internet research the way of the future Despite the weaknesses and limitations outlined here, the Internet will become a more and more significant research tool. For the practical marketer it offers increased speed and cost savings and for the researcher it offers far more responsiveness and flexibility than traditional methods. Moreover, the Internet offers the prospect of new approaches to research the use of virtual prototypes and online market testing, the instant analysis of response and the incorporation of environmental scanning techniques into mainstream research. Online research will not wholly replace traditional techniques but it will become the preferred route. We can also expect that ``multi-media'' research combining the Internet with traditional communications approaches will appeal with the aim being to maintain the robustness and reliability of traditional research techniques while taking advantage of the speed and lower cost of online methods. It remains important, however, for researchers to step back from Internet techniques as Bergstein and Estelami have done here and assess whether they are providing information that marketers can rely on and which really contribute to the decision-making process. (A pre cis of the article ``A survey of emerging technologies for pricing new-to-the-world products''. Supplied by Marketing Consultants for Emerald.)

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