Chapter Ten Price Chapter Ten Learning Objectives To
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 Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
Price Fundamentals: Digital • Cost Structure • Fixed Cost • Sunk Cost • Variable Cost • Marginal Cost • Product Differentiation via Price Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
Price Fundamentals (cont’d) Factors Influencing Setting Online Prices • • Internal objectives Buyer segments served Demand Cost State of the economy Consumer confidence Competitors Product newness Copyright © Houghton Mifflin Company. All rights reserved. • Free alternatives • Channel members • Government • Special events • Seasons • Promotions • Weather 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 Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
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 Copyright © Houghton Mifflin Company. All rights reserved.
Alternative Price Models • • Fixed prices and negotiated prices Demand collection - name your own price Online barter Single channel, multitier prices Dynamic and test prices Bargain prices Estimators Demand aggregators Copyright © Houghton Mifflin Company. All rights reserved.
Payment Strategies (cont’d) • Credit and smart cards • Alternate payment systems • Micropayments – Paypal – Yahoo! Wallet – Honor systems • Online bill management – Beginning to show growth Copyright © Houghton Mifflin Company. All rights reserved.
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