The Importance of Pricing Decisions Hyper-Competition on Price Price Concerns of E-Marketing Managers Loss Leader Pricing to build Installed Base Consumer Price Sensitivity on the Net Cost Transparency
Ability to choose creative and accurate segmentation dimensions
Ease of identifying which segment a buyer belongs to
Ability to create barriers between segments
Pricing Internet has the feature that has high fixed costs and low or zero marginal costs A and B develop software spending $500 million a year in marketing, R&D, and promotion. Variable cost is $5 to sell each copy. Price = $200 Firm A has 80% market share and firm B has 20% share Market size is 10 million units in 1999. Profit for Firm A = 200*8M - (500M+8M*5) = 1060M Profit for Firm B = 200*2M - (500M+2M*5) = -110M Market share is key! Margins and growth rates are also important in determining the profits.
Ebay revenue 88 million/qtr Small operators – liquidators, small retail shops, entrepreneurs 4 million items listed Top 20 sellers 72000 listings Top 38000 – 2.7 million items listed 15.8 million registered users commissions 1.25 – 5% of the value of the item sold
Yahoo has 2.5 million items listed Power seller Bronze $ 2,000 per month Silver $10,000 Gold $25,000 Must have received 100 comments from customers and 98 % positive. Ebay has 20-25K power sellers Power sellers get full time customer service support and permission to display an official power seller logo. 10% of sellers sold 80% of sales Sellers made a 40% margin Amazon spent 25% sales on marketing
Pricing environments Buyers Many One Sellers One Many Auction Exchange Bargaining / Menu pricing Reverse auction
Key players Buyers Many One Sellers One Many Auction Exchange Bargaining / Menu pricing Reverse auction Free Markets Priceline BarterTrust, BigVine Intellibarter, Ubarter Swap.com, SwitcHouse Amazon.com, Ebay Fob.com, Mercata MobShop, Yahoo auctions Altra Energy, CheMatch E-Steel, Gofish MetalSite, PaperExchange
Technology providers Source of Auction Engine Technology 3rd Party Proprietary Degree of Customization Low High Moai OpenSite Ariba CommerceOne Amazon.com Auctions eBay Yahoo! Auctions
English auction : Price starts low and goes up. Highest bidder gets the item and pays his bid
E.g., eBay, Ubid
Dutch auction : Price starts high and gradually declines. The first bidder gets the item and the quantity desired. Used for flower auctions and perishable items. The entire consignment has to be cleared.
It is better to get customers to your own web-site rather than let others control the information about your firm. The price comparisons on other web-sites may be unfair to your product as they may omit relevant information.