The effects of a “no-haggle” channel on marketing strategies

a r t i c l e i n f o As sellers increasingly turn to multi-channel retailing, the opportunity to implement different pricing policies has grown. With the advent of the internet, many traditionally bargained products such as automobiles, jewelry, watches, appliances and furniture are now being offered online at a fixed predetermined price. We explore the strategy of simultaneously offering two pricing formats (fixed and bargained) via two different channels (on-line and brick and mortar) and find that in a market where there are two types of consumers—those with a high cost of haggling and others with a lower cost—a dual-pricing strategy is optimal only when there are enough high haggling-cost consumers, but not too many, and when the haggling costs between the two types of consumers are sufficiently different. We also find that it is optimal for the seller to specify a higher-than-cost minimum acceptable price as the price floor of bargaining. By doing so, the seller increases the bargained price by complementing the salesperson's bargaining ability, and also softens the internal competition between the two channels. Finally, we find that, surprisingly, the dual-pricing strategy may serve fewer customers while still being more profitable than a single price structure. The implications for consumer surplus are also explored. In many markets, bargaining is the norm. In the automobile market, consumers only infrequently pay the sticker price for a car. For products such as electronics, jewelry and furniture, while bargaining is not as overt as in the car market, consumers still expect to be able to haggle with salespeople, either directly on the sales price of the product or on service-related costs: chain retailers such as Best Buy and Sleep Country routinely bargain with in-store customers by offering them in-store discounts as well as additional services such as free delivery and extended warranties. With the advent of the internet and the growing popularity of online buying, however, many manufacturers and retailers are now offering their products at fixed prices either through their own websites or third party sites, ostensibly addressing some consumers' dissatisfaction with bargaining and time spent visiting the physical store (Business Week, 2007). In the automobile market, third-party websites such as www.CarsDirect.com, www.Autobytel.com and the Canadian website www.unhaggle.com allow consumers to obtain price quotes (typically provided by several competing dealers) for the car of their choice. Consumers simply review the price and, if acceptable, the car is …