- Elgar original reference
Edited by Roland T. Rust and Ming-Hui Huang
Chapter 15: Marketing innovation: probabilistic goods and probabilistic selling
Jinhong Xie and Scott Fay
"Probabilistic goods" and "probabilistic selling" are two terms defined recently in the marketing literature (Fay and Xie 2008) to refer to a newly observed marketing innovation. The term "probabilistic goods" (also called opaque products) represents a new product concept that is not a concrete product, but rather an offer involving the probability of obtaining any one of a set of multiple distinct products/services. "Probabilistic selling" is an emerging marketing strategy whereby a seller creates probabilistic goods using existing (component) products/services and adds probabilistic goods to its product line. Priceline.com is an early example of a seller offering probabilistic goods in the travel industry (for example, airlines, hotels, car rentals). Using this website, consumers can purchase travel services for which some specific attributes of the service (for example, the itinerary of the flight, the location of the hotel, or the identity of the car rental company) are not revealed until after payment. However, Priceline offers probabilistic goods via a unique pricing model: Rather than facing posted prices, buyers bid for prices (known as "Name Your Own Price" or NYOP). If the bid is accepted, the buyer's credit card is charged. Early research on opaque products was stimulated by Priceline's specific business model, but most studies focused on the NYOP pricing policy (for example, Fay 2004; Hann and Terwiesch 2003; Spann et al. 2004). Fay and Xie (2008) explore whether or not probabilistic selling can potentially benefit many firms in a wide range of industries.
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