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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 11-2
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 11-3
©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 prices online. The Internet Changes Pricing Strategies 11-5
©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. 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. 11-5
©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. Buyer Control 11-6
©2009 Pearson Education, Inc. Publishing as Prentice Hall 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. 11-7
Seller View, cont. 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. ©2009 Pearson Education, Inc. Publishing as Prentice Hall 11-8
©2009 Pearson Education, Inc. Publishing as Prentice Hall 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. 11-9
©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. Overhead. Customer service. Printing and mailing. Digital product distribution. The Internet Puts Downward Pressure on Prices 11-11
©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: 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 11-11
©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. 11-12
©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. High price elasticity. Reverse auctions. Tax-free zones. Venture capital availability. Competition. Frequent price changes. Smaller price change increments. Is the Net an Efficient Market? 11-13
©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. Price dispersion may occur because many buyers do not know about or use shopping agents. Is the Net an Inefficient Market? 11-14
Is the Net an Inefficient Market? cont. 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. ©2009 Pearson Education, Inc. Publishing as Prentice Hall 11-15
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 150 million accounts worldwide. ©2009 Pearson Education, Inc. Publishing as Prentice Hall 11-16
©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 Strategies 11-17
Fixed Pricing Fixed pricing (menu pricing) is when everyone pays the same price. Two common fixed pricing strategies are: Price leadership. Promotional pricing. ©2009 Pearson Education, Inc. Publishing as Prentice Hall 11-18
©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. There are 2 types of dynamic pricing: Segmented pricing. Negotiation. 11-19
©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 Pricing 11-20
©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. 11-21
©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. 11-22
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 11-23
E-MARKETING 5/E JUDY STRAUSS AND RAYMOND FROST Chapter 11: Price: The Online Value ©2009 Pearson Education, Inc. Publishing as Prentice Hall 11-1.
Price: The Online Value Instructor: Hanniya Abid Assistant Professor COMSATS Institute of Informatio Technology Lecture 12 E-Marketing.
©2006 Prentice Hall11-1 E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 11: Price.
E-Marketing/7E Chapter 10
Day 14 ELC 310. Copyright 2005 Prentice HallCh 1 -2 Agenda Questions? Assignment 2 Corrected Assignment 3 Posted ELC 310 assignment Three.docx No class.
Price: The Online Value E-M ARKETING /7E C HAPTER 10.
Objectives Understand the internal factors affecting a firm’s pricing decisions. Understand the external factors affecting pricing decisions, including.
Learning Goals Identify and define the internal factors affecting a firm’s pricing decisions Identify and define the external factors affecting pricing.
Pricing: Understanding and Capturing Customer Value
10-1 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall i t ’s good and good for you Chapter Ten Pricing : Understanding and Capturing.
Class Discussion Notes MKT September 19, 2001.
Chapter 10- slide 1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Ten Pricing: Understanding and Capturing Customer Value.
©2006 Prentice Hall ELC 310 Day 10. ©2006 Prentice Hall Agenda Assignment 3 Posted Due Oct 19 Quiz 2 Oct M/C (40 points) and 6 Essays (60 points)
Pricing Understanding and Capturing Customer Value
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E-Marketing 5/E Judy Strauss and Raymond Frost
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Principles of Marketing
Learning Objectives After studying this chapter, you should be able to: Answer the question “What is price?” and discuss the importance of pricing in today’s.
Chapter 1 marketing is all around us Section 1.1
10-1 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall i t ’s good and good for you Chapter Ten Pricing: Understanding and Capturing.
Management Information Systems MANAGING THE DIGITAL FIRM, 12 TH EDITION E-COMMERCE: DIGITAL MARKETS, DIGITAL GOODS Chapter 10 VIDEO CASES Case 1: M-Commerce:
Chapter foundations of Chapter M A R K E T I N G Understanding Pricing 13.
1.Define electronic commerce (EC) and describe its various categories. 2.Describe and discuss the content and framework of EC. 3.Describe the major types.
12-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 12 Pricing, Distributing, and Promoting Products.
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin BUILDING THE PRICE FOUNDATION 13 C HAPTER.
Pricing in Service Industry Vandana Sachdeva and Prabhleen Sarna By.
Definition Price The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using.
E-Marketing Strategic E-Marketing and Performance Metrics 2-1.
Class Discussion Notes MKT February 20, 2001.
Copyright © 2007 Pearson Education Canada 17-1 E-Commerce “Buying and selling of goods online and the transfer of funds via digital communications.” Buying.
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IB Business Management 4.5 PLACE. Learning Outcomes To understand the importance of place in the marketing mix (A02) To analyse and evaluate the effectiveness.
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