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Pricing in an Online World

Exploring diverse concepts like Mark-up Rate, Pricing Approaches, Price Sensitivity, Real-Time Pricing, and Bundling in the e-commerce realm. Discover insights from Drucker's Pricing Sins and the power of pricing strategies with real-world examples.

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Pricing in an Online World

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  1. Pricing in an Online World 指導教授:任立中 學生: 楊智富 88751225 陳德勝 88751233 鐘國彰 88751236 高哲惠 88751239 陳銘驥 88751242

  2. AGENDA • Concept of Mark-up Rate • General Pricing Approaches • Empirical Pricing Approaches • Drucker’s Pricing Sins • The power of pricing • Price sensitivity and the Internet • Real-time pricing • Bundling

  3. Concept of Mark-Up Rate (I) Price Sensitivity and Price Elasticity Where, = Contribution Margin Ratio  = -  > 1 (Price Elasticity) C = MC (Marginal Cost)  = -  (Price Sensitivity) = Mark-up Rate

  4. Concept of Mark-Up Rate (II) Pure Monopoly Industry If,  = 2, Mark-up Rate = 2 P* = 2 MC

  5. Concept of Mark-Up Rate (III) Pure Competitive Industry If,  >> 1, Mark-up Rate  1 P* = MC

  6. General Pricing Approaches (Source: “Principles of Marketing” --- Kotler & Armstrong)

  7. Empirical Pricing Approach • Cost Mark-up Method • Pursue Bigger Market Share • Target Profit Pricing

  8. New-Product Pricing Pricing High Low High Quality Low

  9. Patent-Protection / Leading Product Pricing

  10. Product Mix Pricing

  11. Drucker’s Pricing Sins

  12. The Power of Pricing (I) (The High Leverage of Proper Pricing) 1. Proper pricing must reflect changes brought about by the Internet 2. Pricing is Tightly Linked to Profitability

  13. Common Perception Internet always raise consumer price sensitivity Some Companies Can Get Higher Price /Profit Price Sensitivity & the Internet (I) (Price Sensitivity and Online Information) But, WHY ?

  14. Price Sensitivity & the Internet (II) (The Effects of Price Sensitivity on Internet)

  15. ORACLE.com

  16. PriceWatch.com

  17. Prefix.com

  18. Price Sensitivity & the Internet (III) (Why Simple Pricing Approaches Fail ? ) • Setting Prices is Difficult if: • Don’t know their demand curves • Different customers pay different prices • Customers buy multiple products that are linked to each other • Under Rapidly Changing Conditions: • Can’t figure out price elasticity • Solution ? Real-time Pricing

  19. Real-Time Pricing (I) • Auctions • Rental Markets • Yield Management

  20. Evolving toward Online Auction Figure 11.11 Physical Auction Enabler Consignment Selling With Online Purchase Absentee Bidding Allowed Fully Online Auctions • Dutch Auctions • Good for multiple items • Especially perishable goods • English Auctions • Most common • Rising prices Real-Time Pricing (II) Online Auctions ( Christie’s Web) eBay.com, OnSale.com, FirstAuction.com American Clock (flower importer), Dutch flower market

  21. ebay.com

  22. TheAmericanClock.com

  23. CHRISTIEs.com

  24. FCC.com

  25. Real-Time Pricing (III) Online Auctions ( Benefit)

  26. Real-Time Pricing (I) • Auctions • Rental Markets • Yield Management

  27. Real-Time Pricing (IV) Online Rental Markets (Benefits)

  28. Real-Time Pricing (V) Online Rental Markets (Barriers)

  29. IBM.com

  30. Real-Time Pricing (I) • Auctions • Rental Markets • Yield Management

  31. Real-Time Pricing (V) Yield Management Yield management is the matching ofpriceandavailable capacity Price Available Capacity

  32. Real-Time Pricing (VI) Yield Management (Requirement)

  33. Bundling (I) What is Bundling ? • Bundling works particularly well online • Bundling is the combination of products into larger packages • A single fee gives users access to entire product offering • --- AOL

  34. DealTime.com

  35. PlacesToStay.com

  36. Bundling (II) Bundling (Demand Side) Negative Correlation: Bundled Revenue= $100 Has real opportunity to raise profits Positive Correlation: Bundled Revenue= $106 (Source: “Price Theory and Application” --- B. Peter Pashigian)

  37. Bundling (III) On-Line Bundling (Supply Side)

  38. Bundling (IV) 1 Magazine Bundling Works Well When the Bundle is Viewed More Similarly than Individual Items 2 Magazine 20 Magazine Consumer Variations for Bundle The Bundle Demand Curve Figure 11.16

  39. Thanks 指導教授:任立中 學生: 楊智富 88751225 陳德勝 88751233 鐘國彰 88751236 高哲惠 88751239 陳銘驥 88751242

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