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P RICING S TRATEGY IN F LUID M ARKETS Getting Prices Right on the Web.

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Presentation on theme: "P RICING S TRATEGY IN F LUID M ARKETS Getting Prices Right on the Web."— Presentation transcript:

1 P RICING S TRATEGY IN F LUID M ARKETS Getting Prices Right on the Web

2 P RICING S TRATEGY …critical marketing mix variable actually produces revenue shortest term marketing mix variable

3 P RICING S TRATEGY Pricing Objectives profit maximization revenue maximization Hybrid model

4 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

5  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

6 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

7 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?

8 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?


10 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?

11 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?

12 G ROUP F ACE - OFF  What are network effects?  In what ways do network effects affect pricing strategy?

13 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

14 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

15 B AYE AND G UPTA  Strategic Consideration:  What is “strategic” about frequent price changes online?  Is it good enough to be second lowest offer?

16 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.

17 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.

18 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? 

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