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Pricing

Pricing Marketing and pricing Customers’ rationality is bounded Prices are not always determined by pure market forces Marketing has different pricing strategies Skim the cream Odd-number pricing Penetrate the market Searching Web supports information and price searching

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Pricing

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  1. Pricing

  2. Marketing and pricing • Customers’ rationality is bounded • Prices are not always determined by pure market forces • Marketing has different pricing strategies • Skim the cream • Odd-number pricing • Penetrate the market

  3. Searching • Web supports information and price searching • Intelligent agents • In the physical world, searching is costly and time-consuming

  4. Oversupply creates sophistication • Customers shop around and learn • Customers assertively seek value • Marketers innovate to avoid this confrontation • Competitors copy and oversupply continues • The Web accelerates this cycle

  5. Pareto principle • A few customers create most of the value • A Mexican cellular phone company • 10% of customers account for 90% of sales • Recoup investment in months • 80% of customers account for 10% • Recoup investment in years

  6. Spectrum of exchange • Exchanges between actors varies from • Theft by force to trading floor • Marketing is effective between these extremes

  7. Range of marketing effectiveness Customer value categories and exchange spectrum Theft by force Market Theft by stealth forces High Fraud Seduction A+ A Customer's value to the firm Products and B services C Commodities Trades on a stock Low Corporate exchange strategy

  8. Directions • Marketing • Moves customers up the pyramid • Moves products and services away from commoditization • Competition • Moves customers down the pyramid • Moves products and services towards commoditization

  9. Flattening and narrowing • Technology facilitates searching • Reducing transaction costs • Customers make prices • Customers control transactions • More one-to-one negotiation • Commoditization

  10. Technology facilitates searching

  11. Reducing transaction costs

  12. Suppliers tend to make prices and customers take them Auctions are an exception Web is reversing Auctions becoming more popular Customers make prices

  13. Major manufacturers are inviting suppliers to bid on-line Caterpillar and GE Suppliers forced to compete on price Less differentiation personal selling added service Customers control transactions

  14. As negotiation costs decrease, more negotiation should emerge Intelligent agents negotiating on behalf of buyer and seller Prices will be closer to real-market value More one-to-one negotiation

  15. Commodities are the first to migrate to electronic markets The Web is compelling for perishable products Expect more switching between established brands Commoditization

  16. Migrating up and effective marketing • Differentiated pricing all the time • Creating customer switching barriers • De-menuing pricing • Better differentiation • Customers may pay more • Consider total cost • Establish electronic exchanges • Maximize revenue not price • Reduce buyer’s risk

  17. Differentiated pricing all the time • The same product and service can have different values to different customers • Airlines • Drink vendors could charge more on a hot day • Mass customization enables mass price differentiation

  18. Creating customer switching barriers • Collect details on customers to raise switching costs • Knowing preferences is necessary for better service • The Web site should learn about the customer’s preferences

  19. De-menuing pricing • Without automation, changing prices is costly and time-consuming • It takes time to filter through the distribution network • Networks enable rapid dissemination of price changes • Change prices as needed

  20. Better differentiation • Differentiate the buying experience as well as the product or service • Stage the customer experience • The Web as theater for a unique personal experience

  21. Customers may pay more • Marketers often assume customers underestimate the value of a product • This may not be true • Try letting customers set the price • London restaurant

  22. Consider total cost • Purchase price is one element of total acquisition cost • If Web-based purchasing reduces the total acquisition cost customers may pay a price premium • Convenience • Opportunity cost

  23. Establish electronic exchanges • Bartering may be more effective than selling when prices are low • Barter excess supplies • Mainly business-to-business

  24. Maximize revenue not price • Airlines use yield management software to maximize revenue • Use Web to sell perishable, last-minute capacity

  25. Risk Auction • On-line • Premium Return Risk and return trade-off • Buyers may pay a price premium for reduced risk • Manheim Auctions

  26. Conclusion • The Web is having a major impact on pricing strategy • Technology creates opportunities for both buyers and sellers • Smart firms will use the Web to move customers up the pyramid and the exchange spectrum • The Web creates an opportunity for pricing creativity

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