Price: The Online Value

• Mobile apps have different pricing and revenue models.

– Freemium is when companies offer a basic product for free and an upgraded version for a fee.

– Lite versions are sold at low prices with fewer features.

– Full price versions include more features.

The Internet Changes Pricing Strategies

• 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.

Buyer & Seller Perspectives:

Buyer View

• The meaning of price depends on viewpoints of the buyer and the seller.

• Buyer’s costs may include money, time, energy, and psychic costs.

• But they often enjoy many cost savings:

– The internet is convenient and fast.

– Self-service saves time.

– One-stop shopping & integration save time.

– Automation saves energy.

Buyer Control

• The shift in power from seller to buyer affects pricing strategies.

– Buyers set prices and sellers decide whether to accept the prices in a reverse auction.

– In the B2B market, buyers bid for excess inventory at exchanges.

– In the B2G market, government buyers request proposals for materials and labor.

• Buyer power online is also based on the huge quantity of information on the Web.
 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.

– External factors include market structure and market efficiency.

• Pricing objectives may be:

– Profit oriented

– Market oriented

– Competition oriented

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.

• Social media maintenance.

• Customer acquisition costs (CAC).

Downward Pressure on Prices

• 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.

• These efficiencies usually result in lower prices for customers online.

 External Factors Affect Online Pricing

• Market structure and market efficiency affect online pricing strategy.

• The seller’s leeway to set prices varies by market type: ‫تختلف حرية البائع في تحديد األسعار حسب نوع السوق‬

– Pure competition. ‫منافسة شريفة‬

– Monopolistic competition. ‫تالعب أو احتكار‬

– Oligopolistic competition.

– Pure monopoly. ‫احتكار طبيعي محد عندو نفس المنتج‬

• If price transparency results in a completely efficient market, sellers will have no control over online prices.

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.

Is the Internet
an Efficient Market? ‫حسب الدولة وحسب سياساتها‬

• External market factors place downward pressure on internet prices and contribute to efficiency.

– Shopping agents such as BizRate.

– Flash sales.

– High price elasticity.

– Reverse auctions.

– Tax-free zones.

– Venture capital.

– Competition.

– Frequent price changes.

– Smaller price change increments.

 Is the Net
an Inefficient Market? ‫حسب الدولة وحسب سياساتها‬

• The internet does not act like an efficient market with respect to narrow price dispersion for various reasons:

– Branding and brand strength.

– Differentiation.

– Online pricing.

– Delivery options.

– Time-sensitive shoppers.

– Switching costs.

– Second-generation shopping agents.

Payment Options

• Electronic money uses the internet and computers to exchange payments electronically. ‫االلعاب والنقاط‬

• Off-line e-money payment systems include:

– Smart chips in cell phones.

– Mobile wallets.

• For one-time payments, PayPal has become the industry standard with over 113 million accounts worldwide.

Pricing Strategies

• Price setting is full of contradictions and 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.

Fixed Pricing

• Fixed pricing (menu pricing) occurs when sellers set the price and buyers must take it or leave it.

– Everyone pays the same price.

• Three common fixed pricing strategies are:

• Price leadership

• Promotional pricing

• Freemium pricing
 Dynamic Pricing

• Dynamic pricing is the strategy of offering different prices to different customers.

– Airlines have long used dynamic pricing to price air travel.

• Dynamic pricing can be initiated by the seller or buyer. There are 2 types:

– Segmented pricing

– Price negotiation

Segmented Pricing

• Pricing levels are set based on order size and timing, demand and supply levels, or other factors.

– 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 costs of segmentation do not exceed revenue.

• The firm must be careful not to upset customers.

Geographic Segment Pricing

• Geographic segment pricing can help a company relate its pricing to regional or country factors, including
competitive pressures, local costs, etc.

– Pricing differs by geographic area.

– May vary by country.

– May reflect higher costs of transportation, tariffs, margins, etc.

Value Segment Pricing

• The seller recognizes that not all customers provide equal value to the firm.

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, trust between buyers and sellers is an important issue.

• Ebay uses a feedback system to assist buyers.

– B2B auctions, such as uBid, are an effective way to unload surplus inventory.