Strauss5eIM11.docx

Strauss5eIM11.docx

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Strauss5eIM11

Chapter11:

Price:

TheOnlineValue

LearningObjectives（PPT11-2）

TheInternetChangesPricingStrategies

Pricecanbetheamountofmoneychargedforaproductorservice,orthesumofallvalues（money,time,energy,andpsychiccost）thatbuyersexchangefortheseproductsorservices.Fixedpricestrategiessuggestedthatonepricebechargedtoallcustomers,buttheadventoftheInternethasbroughtaboutdynamicpricing,whichvariespricesforconsumers.TheInternethascreatedpricetransparencythatallowsbothbuyersandsellerstoviewallcompetitiveprices.

BuyerandSellerPerspective

Themeaningofpricedependsontheviewpointofthebuyerandtheselleraseachpartymayhaveadifferingopinionastowhatconstitutesafairprice

BuyerView

Value=benefits–cost.Cost=money,time,energy,andpsychiccosts.

TheRealCosts–BuyingontheInternetcanbothincreaseanddecreaseoverallcosts.TheInternetisfarfromperfect,butasbandwidthincreasessomeofthesecostswilldecline.Onlinecostsavingscomefromconvenience,speed,self-service,one-stopshopping,integration,andautomation

BuyerControl–Thepowerhasshiftedfromsellerstobuyers,whichisevidentinreverseauctions.Reverseauctionsallowbuyerstoenterapriceandsellersdecideiftheyarewillingtoacceptthatprice.Buyerpowerisbasedonnegotiationabilitiesandtheamountofinformationavailabletobuyers.

SellerView

Betweencostandpriceisprofit,whichiswhatallsellerswantandneed.Theseller’sperspectiveonpricingincludesbothinternalandexternalfactorsaffectingpricinglevels.

InternalFactors:

PricingObjectives–Profit-orientedobjectivesareforprofitmaximization,focusingoncurrentresults,notlongterm.Market-orientedobjectivesseektobuildacustomerbasethathopetolowercostsandincreaselong-runprofits.Competition-basedpricingissettingpricesaccordingtowhatcompetitorscharge.

InternalFactors:

MarketingMixStrategy–Successfulcompaniesuseanintegratedandconsistentmarketingmixstrategy.TheInternetisonlyonesaleschannelandmustbeusedinconcertwithothermarketingmixelements.

InternalFactors:

InformationTechnologyAffectsCosts–InformationTechnologycanbeexpensive,butonceitisrunningsmoothlyitcancreatetremendouscostefficiencies

TheInternetPutsUpwardPressureonPrices–FactorsinInternetpricinginclude:

onlinecustomerservice,distribution,affiliateprograms,sitedevelopmentandmaintenance,andcustomeracquisitioncosts（CAC）.

TheInternetPutsDownwardPressureonPrices–WayInternetfirmssavemoneyforinternalprocesses:

orderprocessing（self-service）,just-in-timeinventory,lowornooverhead,customerservice,printingandmailing,anddigitalproductdistributioncosts.

ExternalFactorsAffectingOnlinePricing–Thecompetition,marketfactors,price-demandrelationship,andcustomerbehavioraffectonlineandofflinepricingstrategies.

MarketStructure–Economistsrecognizefourtypesofmarketspresentingdifferentpricingchallenges:

purecompetition,monopolisticcompetition,oligopolisticcompetition,andpuremonopoly.

EfficientMarkets–Efficientmarketcharacteristicsinclude:

highpriceelasticity,frequentpricechanges,smallerpricechanges,andnarrowpricedispersions.TheInternetdisplaysallofthesetraits,butdoesthatmakeitanefficientmarket?

IstheNetanEfficientMarket?

–Someexternal,marketfactorsthatplacedownwardpressureare:

shoppingagents,highpriceelasticity,reverseauctions,tax-freezones,venturecapital,competition,frequentpricechanges,andsmallerpricechangeincrements.

IstheNetandInefficientMarket?

–NarrowpricedispersionsuggeststheNetisaninefficientmarket.Otherfactorsinclude:

branding,howgoodsarepricedonline,deliveryoptions,time-sensitiveshoppers,differentiation,switchingcosts,andsecondgenerationshoppingagents.

PaymentOptions

Electronicmoney,ordigitalcash,isasystemthatusestheinternetandcomputerstoexchangepaymentselectronically.Currently,technologiesallowforpaymentsbysmartchipsinsertedintoacellphonethatcanbeusedwithavendingmachineorPOSsystem.

PricingStrategies

Althoughpricesettingisfullofcontradictions,expertsbelievedthatithasbecomenearlyasmuchartasscience.Marketersgenerallyemployalltraditionalpricingstrategiestotheonlineenvironment:

fixedpricing,dynamicpricing,andbarter

FixedPricing

Fixedpricing（alsocalledmenupricing）isatake-it-or-leave-itpricingstrategy.Twocommonlyusedfixedpricingstrategiesusedonlinearepriceleadershipandpromotionalpricing.

DynamicPricing

Dynamicpricingisthestrategyofofferingdifferentpricestodifferentcustomers.Unlikefixedpricing,dynamicpricingcanbeinitiatedbythecustomer.Thetwotypesofdynamicpricingaresegmentedpricingandnegotiation.

SegmentedPricing–Thefirmsetpricinglevelsforsegmentsofcustomersandusesdecisionmakingsoftwaretodeterminewhogetswhatprice.

GeographicSegmentPricing–Afirmsetsdifferentpriceswhensellingaproductindifferentgeographicareas

ValueSegmentPricing–thevaluesegmentpricingstrategyrecognizesthe80/20principle（Paretoprinciple）thatstatesthat80%ofafirm’sbusinesscomesfrom20%ofthecustomerbase.This20%tendtobethemostloyalandmostlikelytoadvocateotherbusiness,sotheydeserverecognitionandspecialattention.

NegotiatedPricing–Thepriceissetmorethanonceinaback-and-forthdiscussion.TheNetischangingtheartofnegotiation,evidentinthepopularityandgrowthofonlineauctions.

RentingSoftware

Manyorganizationsthatrequiretheuseofsoftwareforaspecificorshort-termprojectprefertorentthesoftwareinlieuofpurchasingthesoftware.

ChapterSummary

Priceistheamountofmoneychargedforaproductorservice.Morebroadly,itcoversthesumofallthevalues（suchasmoney,time,energy,andpsychiccost）thatbuyersexchangeforthebenefitsofhavingorusingagoodorservice.Fixedpricereferstoonepricesetforallbuyers.Dynamicpricingmeansvaryingpricesforindividualcustomers.Internettechnologyhaspromptedmasscustomizationandareturntodynamicpricing–especiallynegotiationandpricingforsegmentsassmallasasinglebuyer.Thisiscreatinghugeopportunitiesformarketerstooptimizepricingstrategies,includingchangingthemdailyormoreoften.However,theInternetisalsofacilitatingpricetransparency,theideathatbothbuyersandsellerscanviewallcompetitivepricesforitemssoldonline.

Fromthebuyer’sperspective,thecostofaproductpurchasedonlinemaybehigherthanoffline（duetoseeminglyhiddenelementssuchasshippingcostsandthetimeandeffortneededtosearchoutandcompareprices.）YetbuyersmayalsoenjoyonlinecostsavingsduetotheInternet’sconvenience,speed,self-servicecapability,one-stopshopping,integration,andautomation.Moreover,onlinebuyershavemorecontrolthroughstrategiessuchasreverseauctions,theavailabilityofinformationandproducts,andnegotiationopportunities.

Fromtheseller’sperspective,anypriceabovethecostofproducingthegoodorservicehasthepotentialtoreturnprofit.Theseller’sperspectiveonpricingcoversinternalfactorssuchaspricingobjectives,themarketingmixstrategy,andinformationtechnology.Beyondthebuyer’sperspective,themarketstructureandtheefficiencyofthemarketarekeyexternalelementsaffectingonlinepricing.

Amarketisefficientwhencustomershaveequalaccesstoinformationaboutproducts,prices,anddistribution.Efficientmarketsarecharacterizedbylowerprices,highpriceelasticity,frequentandsmallerpricechanges,andnarrowpricedispersion.TheWebexhibitsmanycharacteristicsofanefficientmarketexceptnarrowpricedispersion.BecausetheInternetcouldbecomeamoreefficientmarketinthefuture,marketersthatwanttomaintaincontroloverpricingshoulddifferentiatetheirproductsonbasesotherthanprice,createuniqueproductbundlesofbenefits,andconsidertheroleofcustomerperceptionsofvaluewhendeterminingpricinglevels.

ChapterOutline

OpeningVignette:

TheVideoEggStory（PPT11-3,11-4）

Havetheclassreadtheopeningvignetteon.Videoegghasrevolutionizedtheonlineadvertisingagebyprovidingsocialnetworkingsitesthetechnologynecessaryforsocialnetworkingsitestoprovideadvertisingvehicleswithinthevideosthemselves.Onequestionthathasbeenraisedisthefreedomofinformationactortherightstointellectualproperty.Discussasaclasshowinsertinganadvertisementintosomeone’spersonalvideomightinfringeontheintellectualpropertyaspectofthistypeofdigitalfilesharing.Whyorwhynotmightthisbeconsideredfreeinformationaccordingtothefreedomofinformationact?

I.TheInternetChangesPricingStrategies（PPT11-5）

Inthenarrowestsense,priceistheamountofmoneychargedforaproductorservice.Morebroadly,priceisthesumofallthevalues（suchasmoney,time,energy,andpsychiccost）thatbuyersexchangeforthebenefitsofhavingorusingagoodorservice

A.FixedPricing–onepriceforall

B.DynamicPricing–varyingpricesforindividualcustomers

C.PriceTransparency–theInternetallowsofallbuyersandconsumerstoseecompetitiveprices.

II.BuyerandSellerPerspectives

Themeaningofpricedependsontheviewpointofthebuyerandtheseller.Eachpartytotheexchangebringsdifferentneedsandobjectivesthathelpdescribeafairprice.

A.BuyerView–buyersdefined:

value=benefits–costs（PPT11-6）

1.RealCosts–TheInternetisfarfrom