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Slide 1
Price: The Online Value Instructor: Hanniya Abid Assistant
Professor COMSATS Institute of Informatio Technology Lecture 13
E-Marketing
Slide 2
Objectives After this lecture, you will be able to: Discuss the
buyers view of pricing online in relation to real costs and buyer
control. Highlight the sellers view of pricing online in relation
to internal and external factors. Outline the arguments for and
against the Net as an efficient market. Describe several types of
online payment systems and their benefits.
Slide 3
All too often strategists overlook one of their best weapons:
improved pricing strategies. (Robert Doctors) Price goes by many
names (Philip Kotler)
Slide 4
Efficient Markets Mean Loss of Pricing Control
Slide 5
Efficient Markets A market is efficient when customers have
equal access to information about products, prices, and
distribution. In an efficient market, one would find: Lower prices.
High price elasticity. Frequent price changes. Smaller price
changes. Narrow price dispersion.
Slide 6
Is the Net an Efficient Market? External market factors place
downward pressure on Internet prices and contribute to efficiency.
Shopping agents such as BizRate. High price elasticity. Reverse
auctions. Tax-free zones. Venture capital. Competition. Frequent
price changes. Smaller price change increments.
Slide 7
Is the Net an Inefficient Market? The Internet does not act
like an efficient market regarding narrow price dispersion. In two
studies, greater price spread was found for online purchases than
for offline purchases. Price dispersion may occur because many
buyers do not know about or use shopping agents.
Slide 8
Is the Net an Inefficient Market? cont. Price dispersion may
relate to other issues: Brand strength. Online pricing. Delivery
options. Time-sensitive shoppers. Differentiation. Switching costs.
Second-generation shopping agents. In summary, the Internet is not
an efficient market.
Slide 9
Payment Options Electronic money uses the Internet and
computers to exchange payments electronically. Off-line e-money
payment systems include: Smart chips. Payment by cell phone. For
one-time payments, PayPal has become the industry standard with
over 84 million accounts worldwide.
Slide 10
PayPal Account Options
Slide 11
Pricing Strategies Price setting has become an art as much as a
science. How marketers apply pricing strategy is as important as
how much they charge. Marketers can employ all traditional pricing
strategies to the online environment.
Slide 12
Fixed Pricing Fixed pricing (menu pricing) occurs when sellers
set the price and buyers must take it or leave it. Everyone pays
the same price. Two common fixed pricing strategies are: Price
leadership. Promotional pricing.
Slide 13
Dynamic Pricing Dynamic pricing is the strategy of offering
different prices to different customers. Airlines have long used
dynamic pricing to price air travel. There are 2 types of dynamic
pricing: Segmented pricing. Price negotiation.
Slide 14
Segmented Pricing Pricing levels are set based on order size
and timing, demand and supply levels, or other factors. Becoming
more common as firms collect more behavioral information. Segmented
pricing can be effective when: The market is segmentable. Pricing
reflects value perceptions of the segment. Segments exhibit
different demand behavior. The firm must be careful not to upset
customers.
Slide 15
Geographic Segment Pricing Geographic segment pricing Pricing
differs by geographic area. May vary by country. May reflect higher
costs of transportation, tariffs, margins, etc.
Slide 16
Value Segment Pricing The seller recognizes that not all
customers provide equal value to the firm. Pareto principle: 80% of
a firms business comes from the top 20% of customers.
Slide 17
Customer Value Segments
Slide 18
Negotiated Pricing and Auctions Through negotiation, the price
is set more than once in a back-and-forth discussion. Online
auctions such as eBay utilize negotiated pricing. In the C2C
market, trust between buyers and sellers is an important issue.
Ebay uses a feedback system to assist buyers. B2B auctions are an
effective way to unload surplus inventory.
Slide 19
Video on Pricing Diversity / Price Discrimination
http://www.youtube.com/watch?v=AgxzFwqqFGw
Slide 20
New Pricing Approaches Pricing and price models are being
turned upside down by the Internet. In 2007, UK pop band, Radio
Head, recently launched their CD online with a pay whatever you
want price tag. Reports suggested that many downloaded the album
for free.
Slide 21
New Pricing Approaches Have you noticed how price models are
changing online? Imagine being paid one day and the next day having
to pay for delivering the same service? AOL used to pay ABC News
for content. Now ABC pays AOL to place its content on AOL pages. It
s also happened in advertising. Audiences used to pay for the
media, now the media pay audiences to watch their ads.
Slide 22
New Pricing Approaches In this section you will see why you
need to review your prices and your pricing models regularly as
transparent and dynamic pricing impact all markets. Name-your-price
services such as Priceline ( www.priceline.co.uk ), transparent
pricing and global sourcing (particularly by giant procurement
mergers like Ford and Chrysler) are forcing marketers to radically
rethink their pricing strategies. Companies who can offer digital
products such as written content, music or videos now have more
flexibility to offer a range of purchase options at different price
points including:
Slide 23
New Pricing Approaches Subscription. This is a traditional
publisher revenue model, but subscription can potentially be
offered for different periods at different price points, e.g. 3
months, 12 months or 2 years. Pay Per View. A fee for a single
download or viewing session at a higher relative price than the
subscription service. Music service Napster offers vouchers for
download in a similar way to a mobile company Pay As You Go model.
Bundling. Different channels or content can be grouped at a reduced
price compared to pay per view.
Slide 24
New Pricing Approaches Ad supported content. There is no direct
price set here, instead, the publishers main revenue source is
through adverts on the site. (Either CPM display advertising on
site using banners ads and skyscrapers or CPC which stands for Cost
Per Click more typical of Search ad networks such as Google Adsense
( www.google.com/adsense.com ) which accounts for around a third of
Google s revenue.)
Slide 25
New Pricing Approaches Other options include affiliate revenue
from sales on third party sites or offering access to subscriber
lists. The UK s most popular newspaper site, the Guardian (
www.guardian.co.uk ), trialled an ad free subscription service, but
like many online publishers has reverted to ad-supported
content.
Slide 26
New Pricing Approaches For all of these it is necessary to have
a sound digital rights management (DRM) solution in place to
minimize copying. A growth in competition is caused partly by
global suppliers and partly by globalized customers searching via
the web, which puts further pressure on prices. Many online
companies enjoy lower margins with more efficient web- enabled
databases and processes. They also cut out the middleman and his
margin. So they revel in the ultra- competitive nature of online
global markets.
Slide 27
New Pricing Approaches And there s more... barter,
countertrade, strategic alliances, technology transfer, licences,
leasing as well as auctions, and reverse auctions where sellers
compete to supply a buyer, counter auctions... are all putting
downward pressure on prices.
Slide 28
New Pricing Approaches On the other hand, web sites can track
customer segments and their sensitivity to prices against their
activity on the site, or past purchase habits recorded in host
databases or stored in cookies held on the user s computer (with
their permission), For example, if a customer s history shows two
visits to a particular product page, then an automatic online
coupon might nudge the unsure customer to buy. In theory, marketers
with well-managed databases can tailor prices to discrete segments
at optimum prices.
Slide 29
Pricing Under Pressure Pricing is under pressure through the
continual trend towards commoditization. Something new is
commoditized almost every day. Once buyers can (a) specify exactly
what they want, and (b) identify suppliers, they can run reverse
auctions. Qualified bidders undercut each other for both business
and consumer products. Colvin (2000) reported that through
MedicineOnline.com elective procedures such as laser eye
corrections or plastic surgery required by a particular customer
are fought over by rival practices.
Slide 30
New Pricing Approaches Price transparency is another factor. As
prices are published on the web, buyer comparison of prices is more
rapid than ever before. Storing prices digitally in databases
potentially enables shopping bots and robot shoppers to find the
best price. Price comparison sites have been around for many years
now, in different sectors. So, such comparison sites create
customer empowerment which leads to further downward pressure on
prices. This is what happens when customers want to take control of
the relationship rather than the other way around.
Slide 31
New Pricing Approaches And it s not going to get any easier to
sustain old prices. A prototype next generation e-commerce server
from the University of Washington uses gaming strategies to decide
when to bargain even harder during the negotiation of complex
contracts. Prices are complex.
Slide 32
New Pricing Approaches Options for the price package include:
Basic price Discounts Add-ons and extra products and services
Guarantees and warranties Refund policies Order cancellation terms
Revoke action buttons.
Slide 33
New Pricing Approaches Ironically, the money-rich and time-poor
customers in B2C markets may be much slower than buyers in B2B
markets where transaction values are often higher, so savings are
more significant. B2B marketplaces, known as exchanges or hubs, and
auctions will grow in significance. Much routine and repetitive
buying will be carried out in these B2B exchanges. Major
corporations are already buying through online exchanges and
auctions.
Slide 34
New Pricing Approaches Marketers (and buyers) will need new
skills defining the strengths and weaknesses of various exchanges
and auctions. Experienced business people know the impact of buying
efficiencies. Martin Butler estimates that a 5% saving in
procurement equals the same contribution as a 30% increase in sales
for many manufacturing companies ( Butler, 2001 ).
Slide 35
Price Monitoring Pricing is an important variable. Not knowing
that your competitors have increased their prices can cost you
loss. Equally not knowing your competitors have cut their prices
can push a brand outside of a price sensitive market.
Slide 36
The Internet is changing pricing for ever. Prices are under
pressure. Pricing structures and options are becoming more complex.
It is crucial to get the pricing right in the short, medium and
long term. Review new price structures in your markets driven by
customers looking for lower prices available through a range of
online tools including reverse auctions, customer unions,
commoditization, cybermediaries, intermediaries, infomediaries and
shopping bots.
Slide 37
Summary How pricing works in online world? From the buyers
perspective From the sellers perspective Market efficiency vs
inefficieny Fixed and dynamic pricing
Slide 38
Something for you to look into Many companies use a new-product
development process called scenario planning. For example Microsoft
executives wonder what it would be like if you could search your
computer for phone numbers, email addresses, and both file names
and document content all at once with one search word. Think of
five scenarios that will make your life easier while using
internet.