Price Response Estimation What is a Price l

Price Response Estimation

What is a Price? l l Narrowly: price is the amount of money charged for a product or service. Broadly: price is the sum of all the values that the consumers exchange for the benefit of having or using the product or service.

Pricing Mechanism l l l Throughout most of history, prices were set by negotiation between buyers and sellers. At the end of 19 th century, the development of large-scale retailing → fixed price policies, i. e. setting one price for all buyers. At the end of 20 th century, the Internet → dynamic pricing, i. e. charging different prices depending on individual customers and situations.

Case: Priceline l l l Its customer base has grown to almost 17 million users, and as many as 9 million people visit the Priceline site monthly (64% are repeat customers). Working mechanism Attractive to the “time sensitivity” product such as travel-related products (e. g. plane tickets, hotel rooms, rental cars, cruises, and vacation packages).

Dynamic Pricing on the Web l Sellers can l l l charge lower prices, reap higher margins, e. g. Dell’s “made-to-order”. monitor customer behavior and tailor offers to individuals, e. g. Amazon. charge prices on the fly according to changes in demand or costs, e. g. online catalog retailers.

Dynamic Pricing on the Web l Buyers can l l l get instant price comparisons from thousands of vendors, e. g. Compare. Net, Price. Scan. com, and 手機王. find and negotiate lower prices. Both sellers and buyers can negotiate prices in online auctions and exchanges. l E. g. 阿里巴巴.

Markup pricing l l l Add a standard markup to the product’s cost. Reasons: (1) sellers are more certain about costs than about demand; (2) price competition can be minimized; (3) fairer to both buyers and sellers. Make sense?

Case: Kodak

Case: Lion

Case: Lion

Inelastic and Elastic Demand

The Dorfman-Steiner Condition l l l The firm is a monopoly. Demand function: Q(P, A), where P is the price and A is the advertising expenditure. Profit function: Π = (P – C)Q(P, A) – A, where C is the marginal production cost. εP: the price elasticity of demand; εA: the advertising elasticity of demand. In the equilibrium, A/Sales = εA/εP.

影響價格彈性的其他因素 l Influence of the Internet on price sensitivity l l The Internet has increased customers’ price sensitivity, e. g. mysimon. com, 手機王. Mckinsey’s study found that there is less pricecomparison shopping taking place on the Internet than is possible: 89% (book), 84% (toy) and 81% (music).

影響價格彈性的其他因素 l l l Asian consumers generally tend to be highly price sensitive and are pragmatic shoppers. One study in south California found that Chinese consumers engaged in more information search on products and prices than U. S. consumers. Price indifference band: 17% (mouthwash), 13% (batteries), 9% (small appliance), and 2% (certificates of deposit).

Consumer Research l l l l Ways of contact Survey research In-depth interviews Focus group Observation research Ethnographic research Diaries Other qualitative methods

Ways of Contact l l Mail: not biased or distorted by interviewers, simple and clearly worded question, low response rate. Telephone: quick, interactive, higher response rate than mail. Personal interview: most versatile, expensive and require more administrative planning and supervision. Online interview: convenient.

Survey Research l l Learn about people’s knowledge, beliefs, preferences, and satisfaction, and to measure these magnitudes in the general population. Best suited for descriptive research Major advantage – flexibility, e. g. Bissell’s Steam’n Clean. Limitations – subject’s language, privacy, incapability, boasting, or cooperation.

In-Depth Interviews l l An in-depth interview is a qualitative method conducted one-on-one using open-ended questions that require the respondents to generate their own answers. The primary difference between an interview and a survey is the interview’s use of an unstructured questionnaire.

Focus Group Research l l l A focus group is a gathering of 6 to 10 people who are invited to spend a few hours with a skilled moderator to discuss a product, service, organization, or other marketing entity. Useful exploratory step Avoid generalizing the reported feelings of the focus-group participants to the whole market.

Focus group research in progress

Outline of Focus Group Interview

Friendship Focus Group l l l Friendship focus group is used in a comfortable setting, usually people’s homes, where the participants have been recruited by the host. This approach is designed to break down barriers and save time in getting to more indepth responses. A self-constructed friendship group was easier to assemble and yielded more honest and candid response.

Observation Research l l Observation research takes researchers into natural settings where they note the behavior of consumers using video, audio, and disposable cameras to record consumers’ behavior at home (with consumer consent), in stores, or wherever people buy and use their products. A market will often use observation in the aisles of grocery, drug, and discount stores to watch people making their product selection.

Examples of Observation Research l l Shoppers often zip through the snack aisle, spending only 42. 7 seconds there, whereas they spend more than twice that in the coffee aisle. Only 34% of shoppers who don’t have baskets actually purchase something, while 75% of shoppers with baskets buy some items. A woman who shops with another woman spends twice as much time in the store than if she shops with a man. Basha’s Market’s greeting cards – 18% → 62% and sales↑ 40%.

Observational Research Fisher-Price set up an observation lab in which it could observe the reactions of little tots to new toys.

Ethnographic Research l l l Ethnographic research involves the researcher in living the lives of the people being studied. Observe consumers in their “natural environments. ” Examples: Sunbeam’s Coleman Grill; Once. Famous.

Once. Famous l l A unique ethnographic laboratory for studying consumer behavior in a natural setting. Some interesting results: man (e. g. Brookstone, Sharper Image) vs. woman (e. g. Pottery Barn); cool colors vs. warm colors; turn left vs. turn right.

Diaries l l Consumers are asked to record their activities through the use of diaries. Pros: (1) catch the consumer in a more realistic, normal life pattern; (2) lead to re-creation of a day in the life of a consumer. It is valuable in media research because they tell media planners exactly what programs and ads the consumers watch. Beeper diaries are used as a way to randomize the recording of activities.

Other Qualitative Methods l l l Cognitive psychologist have learned that human beings think more in images than words. Researchers try through pictures to uncover mental processes that guide consumer behavior. Some scholars believe that the conventional wisdom about consumer research, such as using interviews and focus groups that rely on talking to people and grilling them about their tastes and buying habits, is only good for getting back predictable answers.

Other Qualitative Methods l Methods: l l l l Fill-in-the-Blanks (填空) Purpose-driven Games (目的導向的遊戲) Story elicitation (說故事) Artifact creation (居家事物的描繪), e. g. life collages (生活拼 湊), day mapping (一天生活描述), and construction of instruction books (指導手冊的建構). Photo elicitation (看圖說故事) Photo sorts (照片分類) Metaphors (隱喻)