Welcome!LecturerGiuseppe Pedeliento BSc, MScPhD Candidate, University of Bergamo (Italy)giuseppe.pedeliento@unibg.it
About me …2006 – BSc in Marketing and Communication (Catholic University, Milan)2008 – MSc in Management (Catholic Univers...
AgendaMay 25th -> On line marketing mix: in depth anlysis of product and priceMay 26th -> The e-books case study and instr...
On line Marketing Mix: Product
A brief recap of the 4PsMarketing Mix (McCarthy, E.J., Basic Marketing, Irwin, Homewood, 1960).“The set of controllable ta...
A brief recap of the 4Ps Product: goods and services that constitute the company’s  offering Price: determines company’s...
A brief recap of the 4Ps… are a subset of the 7Ps (service marketing mix):   Product   Price   Place   Promotions   P...
What is a product?“Anything that can be offered to a market for attention,acquisition, use or consumption that might satis...
Product’s relevant decisions                                     Variety                                     Quality    ...
How the web affect productmanagement and development(Lehman & Winter, 2005)                  Data explosion              ...
IntroductionResearch before         Product                             Fulfillment  buying the            Purchase   prod...
Product categoriesProducts can be classified depending on who the finalpurchaser is.Consumer products (B2C): destined for...
Product categoriesProducts can be classified depending on the buyingprocesses:Convenience productsShopping productsSpec...
Convenience productsLow price goods/services that consumers usually buyfrequently, immediately and with a minimum buying e...
Shopping productsLess frequently purchased, considerable time and efforts togather information and compare alternatives   ...
Specialty productsProducts with unique characteristics for which a significantgroup of buyers is willing to make a special...
Unsought productsUnsought products: products thatthe consumer knows or not and doesnot normally think of buying (e.g newpr...
Product attributes and web marketingAUGMENTED PRODUCT                  implications ACTUAL PRODUCT CORE PRODUCT           ...
Relevant product attributes     Why Italian consumers purchaise online?                           Quickness of purchasing ...
Product categories and web marketingimplicationsAre all the products marketable on line?YES! Of Course!Two sources of prob...
Product categories and web marketingimplications Physical products: can be purchased online but necessarily  delivered of...
Product categories and web marketingimplications Services: can be paid on line and delivered both online (e.g.  shares an...
Product categories and web marketingimplications Digital products: products that are digital by composition (e.g.  antivi...
Does everything could be acquired online?   Internet                                                                      ...
What products are most likely to succeedin the e-commerce?      http://www.youtube.com/watch?v=wbnYpynvpnA                ...
The hard to find (niche) productBlackwells Rare Books Mission: “buys and sells rare and collectablebooks in all fields, es...
The hard to find (niche) productHow does the web add value? Rare products easily accessible and purchasable allover the w...
The hard to find (niche) product and the“long tale”           The biggest part of the market!                             ...
The hard to find (niche) product and the“long tale”Consider the book’s market.Amazon.com and other internet retailers sell...
The hard to find (niche) product and the“long tale”How does the web add value?The company can exploit the extreme differe...
The brand importance on the web
Brand strategy                                                                     Online brand                           ...
Pure online brand – 5 steps process      Deciding on brand objectives and message             Developing a brand design   ...
Monitoring the brandThe brand is a company’s asset. Thus it must be continuously and routinelymonitored and measured by me...
Is the brand important in the internet      arena?      What does differentiate the company vis a vis with competitors?   ...
NPDNew product development
New product developmentThe marketing perspective (Kotler, 1967)                           Idea generation                 ...
New product developmentThe technology perspective (Avgerou, 1996)        Problem identification                 Requiremen...
1. IDEA GENERATION: Is the idea worth                                              NO    considering?                     ...
New product development onlineInternet impacts on new product development in terms of   efficiency and speed of the proces...
The role of online brand community onNPDMulino Bianco takes care of its customers’ needs and desires.Thanks to new communi...
Internet exposes brands to consumer’sthreatsSource: Krishnamurthy and Kucuk, 2009                           Giuseppe Pedel...
The role of reseller web site on (new)product’s sales, firm’ brand andcustomers       http://www.amazon.com/Apple-touch-Ge...
On line Marketing Mix: Price
Influences on pricing strategiesWithin the marketing mix price is the variable that most often makes or breaks the deal   ...
Price marketing objectivesSurvivalProfit maximizationMarket share maintenanceProduct quality leadershipPrevent compet...
Price marketing objectives                                                     Price is a                                 ...
CostsCosts determine the lower price the  company can chargeWhat kinds of costs? Variable costs: depend on the output.  V...
Price elasticity of demandDemand: is the amount of a good consumers will purchase  as a function of prices.So demand depen...
Understanding elasticity – some tipsDemand is more elastic for … Categories characterized by intense competition (the  le...
Cost comparison between on & off line                                                    Offline    OnlineConsumersstill  ...
How to set up the price: briefoverview         Cost oriented approach         Competition based approach         Value bas...
Cost oriented approachIs the most common pricing method (approx. 60% of firms). Itconsists in marking up average total uni...
Competition based approachIs less common than the former and it consists in setting up theprice on the basis of competitor...
A typical competition based schemaImportant:Feedbacks must be taken into accountComplicated in presence of low concentra...
Value based approachIs based on the concept of value in use. The price is set up on thebasis of customer’s perceived value...
Sources of Customer Value1. Economic: the economic benefit   a customer derives from using a   product                    ...
Value based approachLong term objective: maximize customer lifetime value  (CLV)To maximize CLV, prices should be customiz...
Impact of perceived customer value    Price sensitivity: the higher the perceived value the     lesser price sensitivity ...
Having the right price Dolan R. J. (1995) How do you know when the price is right, Harvard Business Review, 73 (5), 174 – ...
Upward and downward price pressure                            Web related costs              Upward                       ...
Skimming vs penetration pricingstrategy Skimming strategy: the marketer sets a relatively high price for a   product or se...
Skimming vs penetration pricing strategySkimming strategy:                                      Penetration strategy:Suita...
Skimming vs penetration pricing strategyA skimming strategy is much more viable online rather than offline because of the ...
Psychological pricing strategyPricing approach that considers the  psychology of prices and not simply the  economics. So ...
Differential pricing strategyWhen the seller charges different prices for the sameproduct/service to buyers in different l...
Differential pricing strategyDifferent pricesand differentoffering                   Giuseppe Pedeliento - May 25-26, 2011...
Price lining strategyIs the technique of categorizing goods and services according to price.Customers can clearly identify...
Price on the webSeems to be important …                                      Low prices compared with offline             ...
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Internet marketing course - University of Bergamo and University of Missouri joint program. May, 2011

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  1. 1. Welcome!LecturerGiuseppe Pedeliento BSc, MScPhD Candidate, University of Bergamo (Italy)giuseppe.pedeliento@unibg.it
  2. 2. About me …2006 – BSc in Marketing and Communication (Catholic University, Milan)2008 – MSc in Management (Catholic University, Milan)2010 – Ph.D candidate in Strategic Marketing (University of Bergamo)2011 – Visiting researcher at the Department of Marketing of the Aalto University School of Economics (Helsinki, Finland)Forthcoming (next Fall): lecturer in Product and Brand Management (bechelor level), Strategic Marketing and Company Performances (master level) and in the MediaBiz Master program at the Aalto University School of Economics (Helsinki, Finland)RESEARCH INTERESTS: PROJECT MARKETING, B -TO-B MARKETING Giuseppe Pedeliento - May 25-26, 2011 2
  3. 3. AgendaMay 25th -> On line marketing mix: in depth anlysis of product and priceMay 26th -> The e-books case study and instruction for the assignmentMay 30th -> Discussion of the assignments Giuseppe Pedeliento - May 25-26, 2011 3
  4. 4. On line Marketing Mix: Product
  5. 5. A brief recap of the 4PsMarketing Mix (McCarthy, E.J., Basic Marketing, Irwin, Homewood, 1960).“The set of controllable tactical tools that the firm blends to produce the response in wants in the target market” (Armstrong and Kotler, 1996) Giuseppe Pedeliento - May 25-26, 2011 5
  6. 6. A brief recap of the 4Ps Product: goods and services that constitute the company’s offering Price: determines company’s profits and the product’ appeal toward the customers. Place: how the product is moved from the producer to the customers Promotions: how the company let the consumers know about their offering Giuseppe Pedeliento - May 25-26, 2011 6
  7. 7. A brief recap of the 4Ps… are a subset of the 7Ps (service marketing mix): Product Price Place Promotions Physical evidence ALSO PARTICULARLY RELEVANT IN THE WEB Process CONTEXT People Giuseppe Pedeliento - May 25-26, 2011 7
  8. 8. What is a product?“Anything that can be offered to a market for attention,acquisition, use or consumption that might satisfy a want orneed. It includes physical objects, services, persons, places,organizations and ideas” (Armstrong and Kotler, 1996) Differences between product and services are ever more blurred!!! Giuseppe Pedeliento - May 25-26, 2011 8
  9. 9. Product’s relevant decisions Variety Quality Design Features Brand name Product Packaging Size Add value services Warranties Return …….. Giuseppe Pedeliento - May 25-26, 2011 9
  10. 10. How the web affect productmanagement and development(Lehman & Winter, 2005) Data explosion Increased emphasis of brands Changes in the balance of market power Increased importance of multichannel integration Increased global competition Giuseppe Pedeliento - May 25-26, 2011 10
  11. 11. IntroductionResearch before Product Fulfillment buying the Purchase product Online Online Home delivery Offline Offline Customer collects Online Giuseppe Pedeliento - May 25-26, 2011 11
  12. 12. Product categoriesProducts can be classified depending on who the finalpurchaser is.Consumer products (B2C): destined for the finalconsumer for personal, family and household use.Industrial products (B2B): satisfy goals and needs oforganizations. Giuseppe Pedeliento - May 25-26, 2011 12
  13. 13. Product categoriesProducts can be classified depending on the buyingprocesses:Convenience productsShopping productsSpecialty productsUnsought products Giuseppe Pedeliento - May 25-26, 2011 13
  14. 14. Convenience productsLow price goods/services that consumers usually buyfrequently, immediately and with a minimum buying effort Giuseppe Pedeliento - May 25-26, 2011 14
  15. 15. Shopping productsLess frequently purchased, considerable time and efforts togather information and compare alternatives Giuseppe Pedeliento - May 25-26, 2011 15
  16. 16. Specialty productsProducts with unique characteristics for which a significantgroup of buyers is willing to make a special purchase effort.Buyers know what they want and will not accept asubstitute. Do not compare alternatives and will pay apremium price if necessary Giuseppe Pedeliento - May 25-26, 2011 16
  17. 17. Unsought productsUnsought products: products thatthe consumer knows or not and doesnot normally think of buying (e.g newproducts). But also products to whichconsumers are unaware, products thatpeople do not necessary think ofpurchasing. Sometimes are purchasedas a result of a marketer’s actions or of aparticular event (e.g. rain). Giuseppe Pedeliento - May 25-26, 2011 17
  18. 18. Product attributes and web marketingAUGMENTED PRODUCT implications ACTUAL PRODUCT CORE PRODUCT Installation Packaging Delivery Brand After- name Core benefits Features sale service Quality Styling Credit Warranty How to provide additional on line value? Giuseppe Pedeliento - May 25-26, 2011 18
  19. 19. Relevant product attributes Why Italian consumers purchaise online? Quickness of purchasing and delivery process Low prices compared with offline Broader choices compared with offline Exclusivity of the online offering Other I don’t knowSource: Casaleggio Associati, 2011 Giuseppe Pedeliento - May 25-26, 2011 19
  20. 20. Product categories and web marketingimplicationsAre all the products marketable on line?YES! Of Course!Two sources of problems:1. Distribution: products and services that cannot be delivered online2. Consumer behavior: e.g. product and services that are perceived as risky by customers Giuseppe Pedeliento - May 25-26, 2011 20
  21. 21. Product categories and web marketingimplications Physical products: can be purchased online but necessarily delivered offline. Giuseppe Pedeliento - May 25-26, 2011 21
  22. 22. Product categories and web marketingimplications Services: can be paid on line and delivered both online (e.g. shares and bonds virtually exchanged in the trading on line market) and offline (e.g. flight tickets) . Giuseppe Pedeliento - May 25-26, 2011 22
  23. 23. Product categories and web marketingimplications Digital products: products that are digital by composition (e.g. antivirus software) and/or products that can be presented in digital format (e.g. newspapers) and/or products that are information (e.g. academic papers) Giuseppe Pedeliento - May 25-26, 2011 23
  24. 24. Does everything could be acquired online? Internet Perceived usage importance Search for informations 67% 75% 61% Brands’ comparison 70% Purchasing 28% 57% decision Choice of 35% the 51% reseller FORSource: TNS – Google (2007) HOW On line purchasing= 0% LONG? Giuseppe Pedeliento - May 25-26, 2011 24
  25. 25. What products are most likely to succeedin the e-commerce? http://www.youtube.com/watch?v=wbnYpynvpnA Giuseppe Pedeliento - May 25-26, 2011 25
  26. 26. The hard to find (niche) productBlackwells Rare Books Mission: “buys and sells rare and collectablebooks in all fields, especially modern first editions, private press andantiquarian books” Main advantage: rare products easily accessible and purchasable all over the world Giuseppe Pedeliento - May 25-26, 2011 26
  27. 27. The hard to find (niche) productHow does the web add value? Rare products easily accessible and purchasable allover the world; Increase in information availability (also throughnetworking and social communities); Transaparency of the marketplace; Reduction in search costs;Bigger set of possible choices; Giuseppe Pedeliento - May 25-26, 2011 27
  28. 28. The hard to find (niche) product and the“long tale” The biggest part of the market! THE BUSINESS IS HERE! Giuseppe Pedeliento - May 25-26, 2011 28
  29. 29. The hard to find (niche) product and the“long tale”Consider the book’s market.Amazon.com and other internet retailers sell nearly all ofthe more than 3 million books in print.…a typical brick and mortar stores on average has a stockbetween 40,000 and 100,000 unique titles.One might argue that consumers don’t really care about theremaining 2.9 million book titles … However…we analyzedAmazon’s sales patterns and found that 30-40 % of sales arein books that wouldn’t normally be found in a brick-and-mortar store.Source: Erik Brynjolfsson, Yu “Jeffrey” Hu, Michael D. Smith 2006. Giuseppe Pedeliento - May 25-26, 2011 29
  30. 30. The hard to find (niche) product and the“long tale”How does the web add value?The company can exploit the extreme differences incustomers’ preferencesOnline merchant have greatly increased the set of choicesavailable to consumersCosts of production and distribution fallTraditional retailer can only stock the hits, because shelfspace is expensiveOnline retailers can stock virtually everythingEasy customer’s access to cultural contents Giuseppe Pedeliento - May 25-26, 2011 30
  31. 31. The brand importance on the web
  32. 32. Brand strategy Online brand Brand online Global vs local branding Old (Internet as a part of the Overall branding strategy) Offline brand Online brand New (a different brand for the Online presence) A brand is a name, sign, symbol, or acombination of these, intended to identify the Pure online brand goods or services of the seller and to differentiate them from those of competitors Giuseppe Pedeliento - May 25-26, 2011 32
  33. 33. Pure online brand – 5 steps process Deciding on brand objectives and message Developing a brand design Creating the web site using the brand Launching and promoting the brand Building the brand experience Giuseppe Pedeliento - May 25-26, 2011 33
  34. 34. Monitoring the brandThe brand is a company’s asset. Thus it must be continuously and routinelymonitored and measured by means of marketing research (quali andquantitative) Brand loyalty Brand An high brand equity allows to: reduce marketing costs (especially Brand awareness advertising); equity attract new customers; Perceived makes the demand for company’s quality products rigid; brand extension …. Brand associations Giuseppe Pedeliento - May 25-26, 2011 34
  35. 35. Is the brand important in the internet arena? What does differentiate the company vis a vis with competitors? Brand credibility Product range Customer loyalty Price strategy Delivery’s time and costs Additional services Other No differentiationSource: Casaleggio Associati, 2011 Giuseppe Pedeliento - May 25-26, 2011 35
  36. 36. NPDNew product development
  37. 37. New product developmentThe marketing perspective (Kotler, 1967) Idea generation N P D Concept testing L i f Market analysis e C y Product development & testing c l e Market test Commercialisation and diffusion Giuseppe Pedeliento - May 25-26, 2011 37
  38. 38. New product developmentThe technology perspective (Avgerou, 1996) Problem identification Requirements determination Feasibility study Systems analysis Systems design Programming Implementation and testing Maintenance Giuseppe Pedeliento - May 25-26, 2011 38
  39. 39. 1. IDEA GENERATION: Is the idea worth NO considering? YES2.IDEA SCANNING: Is the product idea NOcompatible with comany’s strategy and resources? YES3.CONCEPT DEVELOP. & TESTING: Can we find a NO concept that consumers like? YES4.MKTING STRATEGY DEVELOP: Can we find a NO viable marketing strategy? DROP YES5.BUSINESS ANALYSIS: Will this product meet NO our profit goals? YES6.PRODUCT DEVELOPMENT: Does the product NO meet commercial trends? YES YES NO Send the idea back to prod NO7.MARKET TESTING: Have product sales met dev.? expectations? YES YES NO Modify the product or mkting8.COMMERCIALIZATION: Are product’s actual NO NO Giuseppe Pedeliento - May 25-26, 2011 strategy? 39 sales satisfying?
  40. 40. New product development onlineInternet impacts on new product development in terms of efficiency and speed of the processIt allows:1. Interactions with consumers to provide ideas, feedback and testing on new product concepts2. A real time platform for collaboration for all supply side participants in the design, delivery and promotion of new products3. A tool to make the market adoption process faster4. A tool to gather information in real time Giuseppe Pedeliento - May 25-26, 2011 40
  41. 41. The role of online brand community onNPDMulino Bianco takes care of its customers’ needs and desires.Thanks to new communication channels that facilitate the interactions and relationshipswith our clients we have decided to develop our growth with them.For this reason we have decided to launch the project “Il Mulino che vorrei” : we want toreceive consumer’s idea regarding new product, evaluate all these idea with them and –if are feasible and compatible with our mission, values and resources – realize them.All the idea proposed are considered by our teams. We ask to the community just to voteall those product idea that they consider interesting . Giuseppe Pedeliento - May 25-26, 2011 41
  42. 42. Internet exposes brands to consumer’sthreatsSource: Krishnamurthy and Kucuk, 2009 Giuseppe Pedeliento - May 25-26, 2011 42
  43. 43. The role of reseller web site on (new)product’s sales, firm’ brand andcustomers http://www.amazon.com/Apple-touch-Generation- NEWEST- MODEL/dp/B001FA1O0O/ref=sr_1_1?s=electronic s&ie=UTF8&qid=1305730066&sr=1-1 Giuseppe Pedeliento - May 25-26, 2011 43
  44. 44. On line Marketing Mix: Price
  45. 45. Influences on pricing strategiesWithin the marketing mix price is the variable that most often makes or breaks the deal Internal factors External factors 1. Marketing objectives 4. Nature of the market PRICING demand2. Marketing-mix strategy DECISIONS 5. Competition 6. Other environmental 3. Costs factors Giuseppe Pedeliento - May 25-26, 2011 45
  46. 46. Price marketing objectivesSurvivalProfit maximizationMarket share maintenanceProduct quality leadershipPrevent competitors from entering the marketTargetingPositioning and repositioning Giuseppe Pedeliento - May 25-26, 2011 46
  47. 47. Price marketing objectives Price is a choice criterion Giuseppe Pedeliento - May 25-26, 2011 47
  48. 48. CostsCosts determine the lower price the company can chargeWhat kinds of costs? Variable costs: depend on the output. Variable costs are the sum of marginal costs over all units produced Marginal costs: is the production’ cost of a single item Fixed costs: are independent by the production’ volume Giuseppe Pedeliento - May 25-26, 2011 48
  49. 49. Price elasticity of demandDemand: is the amount of a good consumers will purchase as a function of prices.So demand depends (first of all) on price!Price elasticity = % change in quantity demanded % change in priceInelastic Demand -> Price Quantity = RevenuesElastic Demand -> Price Quantity Revenues Giuseppe Pedeliento - May 25-26, 2011 49
  50. 50. Understanding elasticity – some tipsDemand is more elastic for … Categories characterized by intense competition (the lesser the competition, the higher the rigidity of demand) Smaller share brands (the higher the brand share, the higher the rigidity of demand) Brands with low level of loyalty (the higher the loyalty, the higher the rigidity of demand)….. Giuseppe Pedeliento - May 25-26, 2011 50
  51. 51. Cost comparison between on & off line Offline OnlineConsumersstill Product Costs Higher Lowerconsidertransaction Search Costs Higher Loweron the webmore risky Risk Costs Lower Higherthan offlineThe supply Distribution Costs Lower Higherchain ishard toorganize! Giuseppe Pedeliento - May 25-26, 2011 51
  52. 52. How to set up the price: briefoverview Cost oriented approach Competition based approach Value based approach Giuseppe Pedeliento - May 25-26, 2011 52
  53. 53. Cost oriented approachIs the most common pricing method (approx. 60% of firms). Itconsists in marking up average total unit cost by some constantBenefitsEasyTangible (plenty of data available)JustifiableProblemIt’s product and not brand orientedIt’s strictly correlated with (production/selling) volume Giuseppe Pedeliento - May 25-26, 2011 53
  54. 54. Competition based approachIs less common than the former and it consists in setting up theprice on the basis of competitor’s price strategyBenefitsIt’s more strategic orientedTangible (when the firm has a good marketing intelligence)JustifiableProblemIt require a deep understanding of the market and ofcompetitorsIt’s risky when the firm’s competitiveness is over (but alsounder) estimatedIt could not works in the long termIts difficult when competitors have very similar productsIt’s hard to use for convenience product Giuseppe Pedeliento - May 25-26, 2011 54
  55. 55. A typical competition based schemaImportant:Feedbacks must be taken into accountComplicated in presence of low concentration Giuseppe Pedeliento - May 25-26, 2011 55
  56. 56. Value based approachIs based on the concept of value in use. The price is set up on thebasis of customer’s perceived value and not on any other factorBenefitsIt’s more target orientedAllow to overcome (in part) the elasticity of the demandIs the best way to set up the price when the product is boundledwith add value servicesProblemIt require a deep understanding of customersValue and perceptions are difficulty measurableIt’s hard to use for convenience productInstable concept; varies markedly across individuals, because ofdifferent tastes, knowledge, importance of performancedifferentials to the user (e.g. computer), ability to pay, … Giuseppe Pedeliento - May 25-26, 2011 56
  57. 57. Sources of Customer Value1. Economic: the economic benefit a customer derives from using a product E2. Functional: those aspects of a product that provide functional or utilitarian benefits to customers F P3. Psychological: the image of the product, including how the product “feels” and whether that feeling matches the image the customer wants to project (e.g. hedonistic products/consumption) Giuseppe Pedeliento - May 25-26, 2011 57
  58. 58. Value based approachLong term objective: maximize customer lifetime value (CLV)To maximize CLV, prices should be customized according to consumers’ perceived value The issue is: What is the actual V = Σt (Rt - Ct) / (1+ i)t value of a Net Value = V - A customer whoseWhere lifetime value isR = Revenue estimated in TC = Cost to Serve years?T = Lifetime of the CustomerA = Acquisition Cost Giuseppe Pedeliento - May 25-26, 2011 58
  59. 59. Impact of perceived customer value  Price sensitivity: the higher the perceived value the lesser price sensitivity  Satisfaction: the higher the perceived value the higher the satisfaction  Complaints and compliments: the higher the perceived value the lesser (higher) are complaints (compliments)  Word-of-mouth: the higher the perceived value the higher the likelihood of positive wom (ewom) Giuseppe Pedeliento - May 25-26, 2011 59
  60. 60. Having the right price Dolan R. J. (1995) How do you know when the price is right, Harvard Business Review, 73 (5), 174 – 183Eight steps to better pricing:1. Assess the value your customers place on a product/service2. Look for variation in the way customers value the product3. Assess customer’ price sensitivity4. Identify an optimal pricing structure5. Consider competitor’s reactions6. Monitor prices realized at the transaction level7. Assess customer’s emotional response8. Analyze whether the returns are worth cost to serve Giuseppe Pedeliento - May 25-26, 2011 60
  61. 61. Upward and downward price pressure Web related costs Upward DownwardDistribution (depending on the Transaction costs of orderingproduct category) processing (e.g. e-tickets or b2b exchanges)Affiliate marketing: commissions to Online customer servicebe paid to the affiliate for the link(e.g. 15%)Site development and maintenance Online direct mail (e.g. no printingcosts (depending on the complexity expenses)of the site and the need for frequentupdates)Search engine marketing costs (paid Other costs (e.g. inventory)listings) Giuseppe Pedeliento - May 25-26, 2011 61
  62. 62. Skimming vs penetration pricingstrategy Skimming strategy: the marketer sets a relatively high price for a product or service at first, then lowers the price over time. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price. Penetration strategy: the marketer sets a relatively low price for a product or service at first, then higher the price over time. It allows the firm to gain a (temporary) price competitive advantage. Giuseppe Pedeliento - May 25-26, 2011 62
  63. 63. Skimming vs penetration pricing strategySkimming strategy: Penetration strategy:Suitable when: Suitable when:Strong relationship between price and Initiating mass market entry perceived quality Building and keeping market shareDemonstrating strong competitive Discouraging competitors advantages Establishing a standardPositioning at the high end Facing high price elasticityLittle chance for competitionCosts are not strongly related to volume Not suitable when:Trying to recover the investment fast Strong relationship between price and perceived qualityNot suitable when: Demonstrating strong competitiveEconomies of scale matter advantageCosts are related to volumeCompetitors are catching up quickly Giuseppe Pedeliento - May 25-26, 2011 63
  64. 64. Skimming vs penetration pricing strategyA skimming strategy is much more viable online rather than offline because of the advantageous cost structure, smaller marketing investment (Wom, social network, …), bigger market (without physical barriers), no or less inventory costs, … 1GB 79 € 2GB 149 € 30 GB 289 € Giuseppe Pedeliento - May 25-26, 2011 64
  65. 65. Psychological pricing strategyPricing approach that considers the psychology of prices and not simply the economics. So it is strongly based on perceived valueCustomers use the price to judge the quality (e.g. perfume or restaurants)Even small differences in price can suggest product differences (e.g. 199€: 100€ range instead of 200 € range ) Giuseppe Pedeliento - May 25-26, 2011 65
  66. 66. Differential pricing strategyWhen the seller charges different prices for the sameproduct/service to buyers in different locations, different segmentsor by purchase quantity.Sometimes different prices are not based on significant differencesin costs:customer-segment pricing (e.g. adults, children, studentsmuseums admission)product-form pricing (e.g. gift packages)location/channel pricing (online/offline) Giuseppe Pedeliento - May 25-26, 2011 66
  67. 67. Differential pricing strategyDifferent pricesand differentoffering Giuseppe Pedeliento - May 25-26, 2011 67
  68. 68. Price lining strategyIs the technique of categorizing goods and services according to price.Customers can clearly identify which products are superior considering theprice. Giuseppe Pedeliento - May 25-26, 2011 68
  69. 69. Price on the webSeems to be important … Low prices compared with offline Source: Casaleggio Associati, 2011 Giuseppe Pedeliento - May 25-26, 2011 69

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