E-MARKETING 5/E JUDY STRAUSS AND RAYMOND FROST Chapter 11: Price: The Online Value ©2009 Pearson...
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Transcript of E-MARKETING 5/E JUDY STRAUSS AND RAYMOND FROST Chapter 11: Price: The Online Value ©2009 Pearson...
E-MARKETING 5/EJUDY STRAUSS AND RAYMOND FROST
Chapter 11: Price: The Online Value
©2009 Pearson Education, Inc. Publishing as Prentice
Hall
11-1
Chapter 11 Objectives
After reading Chapter 11, you will be able to: Identify the main fixed and dynamic pricing strategies
used for selling online. Discuss the buyer’s view of pricing online in relation to
real costs and buyer control. Highlight the seller’s 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.
11-2
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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.
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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The VideoEgg Story, cont.
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.
©2009 Pearson Education, Inc. Publishing as Prentice Hall
11-4
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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 competitive prices online.
The Internet Changes Pricing Strategies
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Pricing Strategies
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
Buyer & Seller Perspectives: Buyer View
The meaning of price depends on the viewpoint of the buyer and the seller.
An agreement to a fair price must be reached or no sales will occur.
Value = Benefits – Cost Buyer’s costs may include money, time,
energy, and psychic costs. The wide price difference; the inclusion and non-
inclusion of tax; supplier rating/reliability; number of reviewers etc.
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
Buyer & Seller Perspectives: Buyer View
But they often enjoy many online cost savings: The Net is convenient and fast.
Research, shop, get entertained 24/7; on a range of appliances. Ordered items received quickly.
Asynchronous communication anytime anyplace Self-service saves time.
Look at choices, track order, pay bills, etc without having to wait for company staff/rep.
One-stop shopping and integration save time. Automobile companies in Malaysia; AutoMall Online USA Customised info by search engine companies
Automation saves energy. Tracking previous purchases; sites visited; passwords store.
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
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.
Risk – “ the winner’s curse”
Buyer Control11-9
©2009 Pearson Education, Inc. Publishing as Prentice Hall
Buyer & Seller Perspectives: Seller View
Price is the amount of money received from the buyer. The seller’s perspective includes internal and external
factors, identified via SWOT analysis. Internal factors include pricing objectives, marketing mix
strategy, and information technology External factors include market structure and
competition Pricing objectives may be:
profit oriented – profit maximisation; breakeven. market oriented – customer buildup competition oriented.
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Seller View, cont.
Marketing mix – must be integrated and consistent, whether online or offline.
The Internet is only one sales channel and must be used in concert with other marketing mix elements.
Information technology Can be expensive but if done well can lead to better
operation and efficiency can place both upward and downward pressure on
prices.©2009 Pearson Education, Inc. Publishing as Prentice Hall
11
©2009 Pearson Education, Inc. Publishing as Prentice Hall
The Internet Puts Upward Pressure on Prices
Online customer service is an expensive competitive necessity – online assistance, e-mail replies.
Distribution and shipping costs – individual packaging adds to cost.
Affiliate programs add commission costs. Site development and maintenance –
hardware, software, connection costs. Customer acquisition costs (CAC).
The average CAC for early online retailing was $82.
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Customer Acquisition Cost
Customer Acqusition Cost Calculator New customers per month 200 Website Development Costs $ 10,000 Estimated life of the website (months) 24 Monthly Promotion Costs $ 2,000 Monthly Maintenance Costs $ 250
Your customer acquisition costs are $13.33 per customer. Which is: Website Development Costs / Expected Life of website) + Monthly
Promotion Costs + Monthly Maintenance Costs New customers = ($10,000.00/24) + $2,000.00 + $250.00 / 200 = $13.33
©
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
Firms can save money by using internet technology for internal processes. Self-service order processing. Just-in-time inventory – sometimes no inventory at all. Overhead – no rental of selling spaces and
associated staffing; if at all in cheaper places Customer service – customers help themselves. Printing and mailing – no mailing or distribution
needed. Digital product distribution – true for limited products
such as software and music..
The Internet Puts Downward Pressure on Prices
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
Market structure and market efficiency affect pricing strategy.
The seller’s ability to set prices varies by market type as identified by economists: 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 Pricing11-15
©2009 Pearson Education, Inc. Publishing as Prentice Hall16
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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.
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
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
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
External market factors place downward pressure on
prices and contribute to efficiency. Shopping agents such as PriceScan, Travelocity. High price elasticity – variability of purchase behavior with changes in
price. Reverse auctions – forces sellers to compete against one another . Tax-free zones – still have a moratorium on internet taxes. Venture capital availability – longterm view prevailing thus no pressure
for immediate profitability. Competition – fierce and highly visible; some sacrificing immediate profit
for brand equity and market share. Frequent price changes – many reasons e.g role of shopping agents,
need for new customers, incremental volume discounts. Smaller price change increments – ranking by shopping agents, easy to
change prices online, presence of price-sensitive customers.
Is the Net an Efficient Market?11-19
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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. Dispersion of prices exceed 30% in some cases. One possible reason - Price dispersion may occur
because many buyers do not know about or use shopping agents.
Is the Net an Inefficient Market?11-20
Is the Net an Inefficient Market? cont. Price dispersion may also relate to other issues:
Brand strength – varies from company to company. Online pricing – fixed, dynamic or auction. Delivery options – time and place. Time-sensitive shoppers – reluctant to spend time
to seek best deal. Differentiation – a result of strong branding. Switching costs – loses familiarity, thus willing to
pay a little more. Second-generation shopping agents- uses ranking.
In summary, the internet is not an efficient market. ©
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Payment Options
Electronic money(e-money or digital cash) uses the internet and computers to exchange payments electronically. Touch & Go ?
Other off-line e-money payment systems include: Smart chips. Payment by cell phone.
More options in payment methods attracts more customers
Additional costs to customers. PayPal has become the industry standard with over 84
million accounts worldwide.©2009 Pearson Education, Inc. Publishing as Prentice Hall
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PayPal Account Options
Exhibit 11.6
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
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 Strategies11-24
Fixed Pricing
Fixed pricing (menu pricing) is when everyone pays the same price.
Even with quantity discounts
Two common fixed pricing strategies are: Price leadership – the lowest price.
Company need to be most cost efficient Normally the largest producer as has the advantage of
economy of scale Promotional pricing.
To encourage first or repeat purchase Limited time period Can be highly targeted through e-mails
©2009 Pearson Education, Inc. Publishing as Prentice Hall
11-25
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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 – depending on the season; group travel.
Quick changes can be done on webpages to announce new prices.
There are 2 types of dynamic pricing: Segmented pricing – set by seller Price negotiation – usually initiated by the buyer.
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©2009 Pearson Education, Inc. Publishing as Prentice Hall
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 Pricing11-27
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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.
Segmented Pricing, cont.11-28
©2009 Pearson Education, Inc. Publishing as Prentice Hall
Customer Value Segments
High Low
A+
A
B
C
Customers Grouped by Value
Customer value to the seller
11-29
The target is to move as many customersas possible to the A+ category and keeping the A+customers as long as possible
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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.
11-30
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.
©2009 Pearson Education, Inc. Publishing as Prentice Hall
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