Added Value and Pricing With Information Technology

Abstract

This study evaluates the extent to which the added value to customers from a supplier’s application of information technology (IT) is manifested through premium prices of a traded good. The study demonstrates that IT can add value to an otherwise undifferentiated good and shows how these benefits accrue to customers from the adoption of IT. Analyzing a case in which the traded good is a homogeneous commodity—commercial fueling—our study shows that the critical impacts of IT are convenience and control—that is, convenience that provides improved access to fuel and control that reduces problems of delegating purchasing authority for the customer. The value of this additional service is exhibited in premium prices customers are willing to pay for the IT-enhanced traded good, relative to the same good without IT. Compared to the price without IT, statistical analysis of the supplier’s pricing history demonstrates that the application of IT to commercial fuel yielded price premiums of between five and 12 percent of the retail fuel price.

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