Presentation on theme: "P RICING S TRATEGY IN F LUID M ARKETS Getting Prices Right on the Web."— Presentation transcript:
P RICING S TRATEGY IN F LUID M ARKETS Getting Prices Right on the Web
P RICING S TRATEGY …critical marketing mix variable actually produces revenue shortest term marketing mix variable
P RICING S TRATEGY Pricing Objectives profit maximization revenue maximization Hybrid model
P RICING S TRATEGY Cost Based Pricing cost plus, markup pricing Demand Based Pricing skimming, penetration Competition Based Pricing customary pricing price-leader approach Premium approach
How marketers apply pricing strategy is as important as how much they charge. Marketers can employ all traditional pricing strategies to the online environment BUT… …with a twist! P RICING S TRATEGIES
T HEORY : R EFERENCE P RICING AND P RICE A NCHORS Every product has a price range, within which changes have little impact on consumer behavior. For example: Prices for well-known brand-name consumer health and beauty products can be raised as much as 17 % without a change in consumer reaction. NOT SENSITIVE/LOW ELASTICTY Range in which price variations acceptable for certain financial services is less than 1 %. SENSITIVE/HIGH ELASTICTY
C ONSUMER D EMAND – P RICE E LASTICITY over time. Conduct periodic price “experiments” to gauge how price sensitivities are changing over time. Offline? Online?
K EY Q UESTIONS FOR S ETTING P RICE Do you sell a commoditized product/service or not? Price vs. quality differentiation? Do you have a strong store brand? Service leader? Penetrate or skim? Do you have a new or exclusive product? Bundle strategy?
B AYE AND G UPTA “online retail industry is an unpromising one for firms seeking competitive advantage” fluid What innovations in pricing strategy are required for a firm to be successful in fluid e-retail markets?
G ROUP F ACE - OFF : Why is pricing such a challenge in online markets? Product or category (price sensitivity??) PLC # of competitors When should a product/service be free? How do you define value if the product is free?
G ROUP F ACE - OFF What are network effects? In what ways do network effects affect pricing strategy?
K EY D IFFERENCES O NLINE : F LUIDITY OF THE M ARKET ease with which online consumers and rival retailers may access comparative information about seller characteristics and prices customers often search at the product level rather than by store or category Implication? Consumers are more selective in online markets Frequent price changes feasible
5 P RICING I NNOVATIONS price experimentation Use price experimentation to learn about your Customers’ Price Sensitivity/Price Elasticity stage of PLC Quickly adjust price based on stage of PLC (price sensitivities) number of competitors Quickly adjust price based on number of competitors Unpredictable Stay Unpredictable Temporary Advantage Use Hit-and-Run Pricing to Gain a Temporary Advantage without Triggering a Price War
B AYE AND G UPTA Strategic Consideration: What is “strategic” about frequent price changes online? Is it good enough to be second lowest offer?
C ONCLUSION ON P RICING Product-specific pricing Dynamic/erratic pricing can be strategic Shortened PLC means higher price sensitivity requires quicker modulation Free may have value – network effects in two- sided markets! Online pricing often the domain of lower management levels but when doing business online that may be a problem.
C ONCLUSION Managerial Challenges: Best e-businesses set up small functional e- marketing groups charged with the task of constantly monitoring opportunities to adjust prices based on market changes and customer behavior. Group members should hold an entrepreneurial view of pricing. Group should be empowered to set short- to medium-term pricing strategy and implement it.
C OMMUNISPACE As a brand manager would you use Communispace’s service? When would you use it? wouldn't you use it? What are the advantages and disadvantages of this market research tool? What is Communispace’s competitive advantage? How is the company creating value? What do you think of Communispace’s business model? How is it different from that of traditional market research companies? If you were Diane Hessan, would you launch a WOM product? What impact would this launch have on the company brand?