The purchase price is one element of the total cost of acquiring a product or service. Searching, shipping, and holding costs, for instance, can contribute substantially to the acquisition cost of some products. In those circumstances, where Web-based purchasing enables a customer to reduce the total cost of a purchase, that person may be willing to pay more than through a traditional channel. This argument can be formulated mathematically.
Let T= total acquisition cost,
P = purchase price,
O = other costs associated with purchase (including opportunity costs)
then T = P + O.
If we use w and t as subscripts to refer to Web and traditional purchases, then all things being equal, consumers will prefer to purchase via the Web when:
Tw< Tt.
Furthermore, consumers should be willing to pay a premium of δ = P w -Pt where δ < Ot -Ow .
For industrial buyers, opportunity costs may be a significant component of the total costs of a purchase. Also, particularly busy consumers will recognize the convenience of Web purchasing. Both of these groups are likely to be willing to pay a premium price for products purchased via the Web, if the result is a reduction in the total purchase cost. As a general pricing strategy, Web-based merchants should aim to reduce customers' Ot so they can raise Pw to just below the point where Tw = Tt.
The Web creates new ways for sellers to reduce the total costs that are faced by purchasers. Sellers can capitalize on these cost reductions by charging higher prices than those that are charged in traditional outlets.
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