Chapter 10 price - the online value

E-MARKETING, 6TH
EDITION
JUDY STRAUSS AND RAYMOND FROST
Chapter 10 - Price - The Online Value

What Is Price?
Promotion
Place (Distribution)
Price
Product
Amount of
money
charged for
a product
or service

The VideoEgg Story
 The video and rich media advertising company was founded in
2004 by 3 Yale graduate students.
 VideoEgg delivers ads to social networking sites, video sites,
and gaming applications.
 VideoEgg created AdFrames, which allow video viewers to roll
over and watch ad-sponsored content.
 Online advertising is bought and sold on a CPM (cost per 1,000
impressions) or pay-per-click model (PPC).
 In contrast, VideoEgg charges advertisers based on user
engagement (roll over action) with the ad.
 VideoEgg’s innovative pricing scheme is $0.75 per roll over,
which it splits 60/40% with the site owner.

 Price is the sum of all values that buyers exchange
for the benefits of a good or service.
 Throughout history, prices were negotiated; fixed
price policies are a modern idea.
 The Internet is taking us back to an era of dynamic
pricing--varying prices for individual customers.
 The internet also allows for price transparency--
both buyers and sellers can view prices online.
The Internet Changes Pricing
Strategies

Buyer & Seller Perspectives: Buyer
View
 The meaning of price depends on the viewpoint of
the buyer and the seller.
 Buyer’s costs may include money, time, energy, and
psychic costs.
 But they often enjoy many online cost savings:
 The Net is convenient and fast.
 Self-service saves time.
 One-stop shopping and integration save time.
 Automation saves energy.

 The shift in power from seller to buyer affects pricing
strategies.
 In the B2B market, buyers bid for excess inventory.
 In the B2G market, government buyers request proposals
for materials and labor.
 Buyers set prices and sellers decide whether to
accept the prices in a reverse auction.
 Buyer power online is also based on the huge
quantity of information and products available on the
Web.
 Beware of “the winner’s curse”
Buyer Control

Buyer & Seller Perspectives: Seller
View
 The seller’s perspective includes internal and
external factors.
 Internal factors include pricing objectives, marketing
mix strategy, and information technology
 Pricing objectives may be: profit oriented; market
oriented; competition oriented
 The Internet is only one sales channel and must be
used in concert with other marketing mix elements.
 Information technology can place both upward and
downward pressure on prices.

 Firms can save money by using internet technology
for internal processes.
 Self-service order processing.
 Just-in-time inventory.
 Overhead.
 Customer service.
 Printing and mailing.
 Digital product distribution.
The Internet Puts Downward Pressure
on Prices

The Internet Puts Upward Pressure on
Prices
 Online customer service is an expensive
competitive necessity.
 Distribution and shipping costs.
 Affiliate programs add commission costs.
 Site development and maintenance.
 Customer acquisition costs (CAC).
 The average CAC for early online retailing was $82.

 Market structure and market efficiency affect pricing
strategy.
 The seller’s ability to set prices varies by market
type:
 Pure competition.
 Monopolistic competition.
 Oligopolistic competition.
 Pure monopoly.
 If price transparency results in a completely efficient
market, sellers will have no control over online
prices.
External Factors Affect Online
Pricing

Efficient Markets
 A market is efficient when customers have equal
access to information about products, prices, and
distribution.
 In an efficient market, one would expect to find:
 Lower prices.
 High price elasticity.
 Frequent price changes.
 Smaller price changes.
 Narrow price dispersion between highest and lowest price
for a product.

Efficient Markets Mean Loss of Pricing
Control
Pure monopoly
Oligopolistic competition
Monopolistic competition
Pure competition
Government control
Market control
Area of control for
e-marketing pricing strategy
Efficient market

 External market factors place downward pressure on
prices and contribute to efficiency.
 Shopping agents such as PriceScan.
 High price elasticity.
 Reverse auctions.
 Tax-free zones.
 Venture capital.
 Competition.
 Frequent price changes.
 Smaller price change increments.
Is the Net an Efficient 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.
Is the Net an Inefficient Market?

Is the Net an Inefficient Market?
 Price dispersion may also relate to other issues:
 Brand strength.
 Online pricing.
 Delivery options.
 Time-sensitive shoppers.
 Differentiation.
 Switching costs.
 Second-generation shopping agents.
 The internet is not an efficient market.

Payment Options
 Electronic money uses the internet and computers to
exchange payments electronically.
 Other off-line e-money payment systems include:
 Smart chips.
 Payment by cell phone.
 PayPal has become the industry standard with over
84 million accounts worldwide.

PayPal Account Options (Exhibit
11.6)

 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.
Pricing Strategies

Fixed Pricing
 Fixed pricing (menu pricing) is when
everyone pays the same price.
 Two common fixed pricing strategies are:
Price leadership.
Promotional pricing.

Dynamic Pricing
 Dynamic pricing is the strategy of offering
different prices to different customers.
 Firms use dynamic pricing strategy to optimize
inventory management and to segment
customers.
 Airlines have long used dynamic pricing to price
air travel.
 There are 2 types of dynamic pricing:
 Segmented pricing.
 Negotiation.

 Pricing levels are set based on order size, timing,
demand, supply, or other factors.
 Segmented pricing is 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.
Segmented Pricing

 Geographic segment pricing
 Pricing differs by geographic area.
 May vary by country.
 May reflect higher costs of transportation, tariffs,
margins, etc.
 Value segment pricing
 Recognition that not all customers provide equal value to
the firm.
 Pareto principle: 80% of a firm’s business comes from
the top 20% of customers.
 Customer value segments
Segmented Pricing, cont.

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, consumers enjoy the sport
and community while others are just looking
for a good deal.
B2B auctions are an effective way to unload
surplus inventory.

Renting Software
 Software companies sometimes
decide to rent rather than sell
software to customers.
 Renting software is analogous to
leasing cars.
 Salesforce.com rents a leading CRM
software system.

Prepare “Radiohead: Music at
Your Own Price” case for
tomorrow class.

Chapter 10 price - the online value

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Chapter 10 price - the online value