Transcript Chapter Four

Chapter
Ten
Price
Chapter Ten
Learning Objectives
• To identify factors that affect how Internet
prices are set
• To learn about online price issues that
concern consumers and enterprises
• To identify alternate Internet pricing models
and understand why some price strategies
are successful and others are not
• To examine Internet payment alternatives and
determine how buyers can pay for products
online
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10–2
Price Fundamentals
• Price - how much buyers are willing to
give up of something they value to take
possession or use a product
• Price allocates products; clears markets
• Supply & demand relationship
• Price - potent online competitive tool
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10–3
Price Fundamentals: Digital
• Cost Structure
• Fixed Cost
• Sunk Cost
• Variable Cost
• Marginal Cost
• Product Differentiation via Price
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10–4
Price Fundamentals (cont’d)
• Price sensitive consumers seek out
online bargains
• Some consumers prefer convenience,
will pay more for it
• Price conscious consumers attracted by
sales, balanced by other factors
• Internet facilitates price comparisons
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10–5
Price Fundamentals (cont’d)
• Customer value
• The Pareto Principle or 80-20 rule
– Best customers, top 20 percent
• Operational data tools, data mining, query
systems can identify top 20 percent
• Identifies customers who will respond to price
promotions, real-time price changes
• Lifetime value of best customers
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10–6
Price Fundamentals (cont’d)
Factors Influencing Setting Online Prices
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Internal objectives
Buyer segments served
Demand
Cost
State of the economy
Consumer confidence
Competitors
Product newness
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• Free alternatives
• Channel members
• Government
• Special events
• Seasons
• Promotions
• Weather
10–7
Price Fundamentals (cont’d)
Is there really an online first mover advantage?
• Many first movers set prices too low
• Free shipping & handling widespread
• Lots of free or “at cost” product offers
• Attracted bargain hunters
• Burned through cash
• Crashed
• Less irrational pricing now
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10–8
Price Fundamentals (cont’d)
• Online/offline price consistency
– If not consistent, must explain why
• Price setting within acceptable range
– Set close to ceiling
– Pricing flexibility essential online because of ease
of making online price comparisons, rapid
competitive price changes
• Internet allows real time price testing
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10–9
Price Issues
• Downward pressure or not?
• Initial expectations of a price utopia
• Offline price information asymmetry
• Online price information symmetry
• Downward price pressure online far less
apparent than anticipated
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10–10
Price Issues (cont’d)
• Price transparency
• Search sites
• Internet access pricing
• Price fairness
• Shipping & handling
• Cross-border pricing
• Illegal price practices online
– Auction fraud is biggest source
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10–11
Alternative Price Models
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Fixed prices and negotiated prices
Demand collection - name your own price
Online barter
Single channel, multichannel, multitier prices
Dynamic and test prices
Bargain prices
Estimators
Demand aggregators
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10–12
Payment Strategies (cont’d)
• Credit and smart cards
• Alternate payment systems
• Micropayments
– Paypal
– Yahoo! Wallet
– Honor systems
• Online bill management
– Beginning to show growth
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10–13