Survey: E-Tailers May Not Save Consumers Money

Online retailers face less price competition, enabling them to charge higher prices than their brick-and-mortar competitors, according to a survey by Harvard Business School. Contrary to popular belief that the Internet offers consumers lower prices, the study reports that for products that must be examined in stores before purchase, consumers end up paying more. Furthermore, the study found that the use of the Internet not only leads to higher prices, but it can also discourage consumers from engaging in product searches. "While the Net allows consumers to save shopping time and effort, it can make it costly for them to try new products like clothes that have to be evaluated in person," says Professor Rajiv Lal, the Stanley Roth Sr. Professor of Retailing at Harvard Business School, who coauthored the study, "Is the Internet Likely to Decrease Price Competition?" Higher prices on the Web generally can be traced to consumer loyalty to a valued brand, the report suggests. Given the convenience of the Internet, consumers may continue buying a favored product, even if the online price is higher than the store price. The findings suggest that companies that operate both retail stores and Internet sites should improve the personal service they provide to customers shopping for certain products in their stores to ensure that these customers make subsequent purchases online. The study appears in the current issue of Marketing Science, a publication of the Institute for Operations Research and the Management Sciences, an international society of 12,000 members dedicated to applying scientific methods to help improve decision-making, management, and operations.