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e-Commerce : Winning pricing strategy

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Winning Pricing Strategy is the talk I delivered at the 2nd Asian Annual Reserve Conference, KualaLumpur, Malaysia. Enjoy, if you have a question feel free to catc me......

Winning Pricing Strategy is the talk I delivered at the 2nd Asian Annual Reserve Conference, KualaLumpur, Malaysia. Enjoy, if you have a question feel free to catc me......

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  • The ZMOT is now a more important factor to driving a consumer to purchase than both the initial stimulus a shopper receives from an advertisement and the shelf experience a customer has in-store. Ultimately, this means that shoppers care more about what other shoppers are saying than they do about advertiser and retailer claims.Furthermore, one person’s purchase experience becomes the next person’s ZMOT. The more shoppers write helpful product reviews, provide product ratings, and/or mention your product online, the more information the next shopper has to consider in their own purchase process.
  • The very essence of defining the pricing strategy is to beat competition and to attract customers to a particular product. This has been happening even before the word price had been coined. But the advent of internet has changed everything. Infact it has removed the cushion on which marketers made deals at different prices” Information”. The internet has opened the market to one and all. The fact is it has become the biggest market in the world. A villager in the remotest part of world can buy the same item that we can buy and maybe sometimes at a price cheaper than what we had to pay. Well shipping cost do occur but with such a huge reach Internet has virtually removed all the physical barriers and borders. Anyone and everyone who has an access to internet is a potential customer and has his own buying capacity. A company offering such flexibility to at least a portion of this market is bound to succeed. The fact is in short words Internet has made pricing unstable. It has made it more dynamic. Pricing can no longer remain the same for a long time. Infact the changing technology has made the average life of product small. What was a sensation today will be outdated in a week as technology and its reach advances. Whereas in older days it wasn’t so. This has made pricing also change. The more the dimensions in a product’s life change the more it impacts it price. For example a Smart phone. The cost of a pre-order smart phone is always higher than the cost of the same phone after launch. And infact within weeks of the phone’s launch its price may either go up or down not just based on where it is sold but taking the whole world sales scenario in mind. So, if it cost $300 in Singapore in a store the same may cost $200 online. Thus the dimensions of the market have changed and so have the pricing patterns of the product with the advent of the internet. This has made the consumer more aware of all the aspects of a product including its price and made the consumer more demanding and more technologically aware. This has made the consumer more demanding with the knowledge he has and the fact that he knows these prices are possible. So, pricing a product has made it more important. The fact remains that a pricing strategy should be ever changing otherwise a competitor with changing pricing strategy will actually eat into the market pie in a flash.In a nutshell to sell something to a consumer now the websites provide facts, solid testimonials and trail of hands on use so that uniqueness of their product or service is seen. As a matter of fact a few websites no, most websites have a enabled price comparison all available alternates then and there to make it more competitive and attractive.All these ladies and gentlemen have made the willingness to pay less and hence the need of a pricing strategy so that the company makes money while still holding on to and increasing its market share all more important.
  • Before I proceed into pricing, I will like to show you a video that I got from Google Analytical.
  • Before I proceed into pricing, I will like to show you a video that I got from Google Analytical.
  • In my opinion there are two golden rules on pricing.
  • In my opinion there are two golden rules on pricing.
  • Pricing strategy has been a pillar of online merchandising, but what worked yesterday might not work so well tomorrow. In other words, every winning recipe needs constant monitoring and, sometimes, adjustments.
  • Pricing strategy has been a pillar of online merchandising, but what worked yesterday might not work so well tomorrow. In other words, every winning recipe needs constant monitoring and, sometimes, adjustments.
  • Price LeaderA product that has a demonstrated benefit or attribute over other products in the same category can price itself far above the prevailing pricing rates. Tide laundry detergent is such a product in the laundry detergent segment. Liquid Tide can cost almost 10 times the amount of other brand name detergent products like Arm & Hammer or Gain for the same amount of product. For decades, Tide has made numerous product improvements, and heavy advertising spending communicated its superiority over competitors and justified its position as the pricing leader. Price MatchingMatching a competitive price is a tactic used by marketers to take the issue of price off the table. This tactic is used by a company that may be stronger competitively on other features and benefits. Price matching puts a competitor on the defensive. The gasoline industry sets price based upon the price of crude oil primarily. However from block to block, there will be price matching and even pricing wars among local competitors. Price UndercuttingA product may undercut price with the recognition that it is in a difficult position against a strong competitor and the only way to compete is to lose money on price but make it up on the volume sold. This is known as price undercutting. With this strategy, unit sales volume becomes the measurement of market success rather than dollar sales volume. The goal here is to make up the loss realized from a lower price with growth in unit sales from an attractive price, which creates higher demand and thus higher total dollar volume. Lost LeaderAnother pricing strategy is to sell a product at such a low price that the company loses money with each purchase. This strategy is usually a short-term strategy that the product employs to create demand for itself or another company product selling in the same product category. A manufacturer of bread spreads might price its jelly as a lost leader and charge a premium for its peanut butter. The perception by customers is that both products have a good price even though one might be significantly above competitors' pricing. Close Out and Sale PricingThis pricing strategy is employed when the goal is to move units of product without regard to price. This is a technique often used by stores that are closing or when new seasonal merchandise is due in the store but current stocks of last season's goods have not been sold. 
  • I found this interesting quote by Kate Mcfarlin a free lancer – insurance agent. “While it may seem simple to set a price for an item, several consumer psychology factors come into play. The price point you set for your item may even determine how successfully it sells.”-Kate McFarlin
  • First, it provides new opportunities for companies to maximize their return per customer. Companies gather information about their competition and about customer needs and willingness to pay then customize their offerings and prices. With dynamic pricing, companies can give their customers exactly what they want, at exactly the price they are willing to bear. Nothing is left on the table. The second, perhaps less obvious, benefit is that dynamic pricing can also bring better returns on deployed assets. For businesses with high fixed-cost technology infrastructures, periods of low demand and, thus, low utilization are expensive. Conversely, when there are inflexibilities in the supply chain for critical components, periods of high demand can lead to shortages and can both delay purchasing and damage customer relationships. But with dynamic pricing, companies can encourage demand in slow periods and discourage it in busy periods.
  • Time-Based Pricing - exploits the different prices customers are willing to pay at different times. For example, early buyers are willing to pay more for the latest fashions, computer and electronics innovations. Two types - Peak-load pricing and Clearance pricing (JC penny, GAP). Segmentation and rationing exploit the difference in the willingness of customers to pay through different channels, at different times and with different levels of effort. Airlines may have as many as 15 different prices for the same seat, depending on whether it is a restricted or unrestricted fare, when it's booked (say, a 14-day advance purchase versus a one-week advance purchase) or other factors. Dynamic merchandising exploits the Internet-enabled capacity to change prices rapidly and frequently to offer customers different products, promotions, delivery options and pricing as supply and inventory change. It allows Internet sellers to clear excess inventories without always having to lower their prices and potential profits. For example, Amazon.com makes personalized buying suggestions every time a return customer logs on to its site. That way it can clear inventory and gain sales based on each customer's particular interests.
  • Time-Based Pricing - exploits the different prices customers are willing to pay at different times. For example, early buyers are willing to pay more for the latest fashions, computer and electronics innovations. Two types - Peak-load pricing and Clearance pricing (JC penny, GAP). Segmentation and rationing exploit the difference in the willingness of customers to pay through different channels, at different times and with different levels of effort. Airlines may have as many as 15 different prices for the same seat, depending on whether it is a restricted or unrestricted fare, when it's booked (say, a 14-day advance purchase versus a one-week advance purchase) or other factors. Dynamic merchandising exploits the Internet-enabled capacity to change prices rapidly and frequently to offer customers different products, promotions, delivery options and pricing as supply and inventory change. It allows Internet sellers to clear excess inventories without always having to lower their prices and potential profits. For example, Amazon.com makes personalized buying suggestions every time a return customer logs on to its site. That way it can clear inventory and gain sales based on each customer's particular interests.
  • 1. Margins! Margins! Margins!I wouldn’t recommend getting in a pricing battle with your competition. As you slowly lower your prices, you may end up dropping them to an unacceptable level. Unless you’re bringing in the traffic you need to justify the lower pricing, you could be losing money. Additionally, having the cheapest prices may not be feasible with other products, but your customers are already used to your low prices and may search somewhere else, the next time around. 2. Create a Unique Selling PropositionIt is always important to ask yourself, “What makes us different than our competitors?” and, “Why will our customers continue shopping with us?” For Zappos, it is their unbelievable customer service. For Sevenly, it is their contribution to a weekly charity. Your business needs to discover what makes it unique and then cultivate and incorporate this angle into your pricing strategy. 3. The Loss Leader StrategyThis is not a new concept. Let’s sell something at a ridiculously discounted rate and hope that customers purchase more once they are in the door (real or virtual, of course). This strategy can work with the right products and can help with customer acquisitions. The best example is that you can now buy printers for $25-$30, but the ink costs $50 to replace. If you have a product you can use this strategy for, while still keeping your margins vs. traffic in mind, you might want to give it a go! 4. Incentivize Your CustomersNow that you are comfortable with your margins and have figured out a solid pricing strategy, it is time to motivate your customers to open their wallets. There are many different ways to do this, but what is really important about your incentives is the psychology behind them.Limited time offers are a great way to motivate. For example, “During the next 6 hours, you’ll get an additional 20% off!” The knowledge that the offer won’t always be around could help someone decide to purchase immediately, as opposed to procrastinating and forgetting about the item, altogether. The way you structure a deal can also help push the customer to purchase your product or, at least, think twice about it. When a customer sees, “Buy one, get one 50% off,” their mind processes a 50% discount, when really, they are only getting 25% off.  If you happen to have extra inventory, offering a two-for-one deal could work. This can give your e-commerce store the reputation of offering great deals but you don’t have to kill your margins to gather attention for your products. 5. Test and Test and Test and TestEvery product and every store is very different. You will need to measure and test each strategy you implement to see what works and what fails. Use tools like Google Analytics to track and analyze the website traffic results of your pricing strategies. Find out if your “Winter Sale” converted the results you were hoping for and if not, find out why, so that you can fix it for your next pricing campaign.
  • Transcript

    • 1. 2nd ASIA e-COMMERCE CONFERENCE 5 – 6 November, 2012 Malaysia
    • 2. Suraj Mishra, 46 www.sg.linkedin.com/in/surajmishrasg email: suraj.mishra.sg@gmail.com 24 years - financial services industry Managing Director, Aprikot – Training & Consultancy Ex-CEO, Prudential Asset Management - Singapore, UAE and Malaysia. MBA (Finance), B.Com (Hons), CFPTM, MFPTM, CWMTM
    • 3. The 4Ps Are OutSource: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
    • 4. ‘70 concept undergoing transformationStarted in 1960, made leading edge by Philip Kolter in 1967  The Four Ps thrived in a different world.  It was a wonderful fantasy world.  Marketers were king. Product differences lasted.  Big, obedient audiences could be reached with big, efficient media.Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
    • 5. The 4PsAre Out, The 4E s Are In.Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
    • 6. What is the world of marketing today? The consumer has seized control. Audiences have shattered into fragments and slices. Product differences can last minutes, not years. The new ecosystem is millions and billions of unstructured one-to-one and peer-to-peer conversations. Product EXPERIENCE Place EVERYPLACE Price EXCHANGE Promotion EVANGELISMSource: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
    • 7. ZERO MOMENT OF TRUTHSource: www.zeromomentoftruth.com
    • 8. PURCHASE PROCESSThere have been three critical junctures within a customer’s purchase process where productmust be successful: stimulus, shelf, experience At shelf In-store Experience Stimulus First Second Moment of Moment of Truth Truth This is the moment when an The consumer, driven by an (Experience) - Once home advertisement/knowledge advertisement or knowledge, visits with the product, the connects with a consumer in your office and the combination of consumer uses it and forms such a way that pushes him or product packaging and salesperson an opinion of his or her her to visit a start the claims, results in a purchase. purchase. discussion. Source: www.zeromomentoftruth.com 8
    • 9. What will influence this buy ?
    • 10. 1 Buyers aren’t relying on sales people for information before making a purchase. Customers are obtaining2 more information of our products and services, but not the right kind.
    • 11. NEW PARADIGMThe ZMOT introduces a “new” moment of truth to the traditional paradigm of the consumerpurchase process. A moment in which the social and collaborative nature of the Web becomes thedetermining factor in a shopper’s decision making. Stimulus Stimulus First First Moment Moment of Truth of Second Moment Moment Second of Truth Truth of Truth Zero Moment of Truth  The ZMOT is now a more important factor to driving a consumer to purchase. This means that shoppers care more about what other shoppers are saying than they do about advertiser and retailer claims.  Furthermore, one person’s purchase experience becomes the next person’s ZMOT. Source: www.zeromomentoftruth.com
    • 12. NUMBERS 50% 49% 38% 38% of consumers of consumers of consumers used a search talked with sought comparison engine to find friends/family information on shopped online out about the manufacturer information product Website 31% 22% 22% 18% of consumers sought read read product information comments became a reviews or from a following an friend, follower endorsements retailer/store article/opinion , “liked” a online Website piece online brandSource: www.zeromomentoftruth.com
    • 13. There are 000’s & 000’sof websites all competing for your customer’s hard earned money
    • 14. Do you know how much your products are worth?
    • 15. How low are you willing to price anitem to compete withanother e-commerce retailer?
    • 16. Is the lowest-pricestrategy sustainable?
    • 17. Current ScenarioONLINE MARKET
    • 18. HUMANGEOUS market No BOUNDARIES PRICING dynamicShorter PRODUCT CYCLECustomer’s EXPECTATIONSToo much INFORMATIONToo much TRANSPARENCY
    • 19. Global Online RETAIL Sector TOTAL REVENUE CAGR $530 bn* 15.4%* * in 2011 * between 2007 and 2011 TOTAL REVENUE STORES Forecast Revenue $421 bn* 8500 in 15 countries * in 2011 $1,096 bn by 2016 TOTAL REVENUE Hypermarkets 1395 CARG 15.6% (2011 – 2016) $120 bn* worldwide * in 2011 The online retail sector consists of the total revenues generated through the sale of retail goods via online channels, valued at retail selling price. The market values exclude travel and ticket bookings, online corporate purchasing, and online auction transactions. All currency conversions are calculated using constant 2011 annual average exchange rates. Source: Abstract of the Global Online Retail report by Market Research.com
    • 20. Please mouse-over the video to “play”.This is a video clip from Google Analytical website. The video belongs to Google.
    • 21. #1SIMPLE. UPFRONT & NO SURPRISESMention the complete "out the door" costs. It should include the shippingcost, additional taxes, marketing costs, payment process, ecommerce applicationsand customer service.
    • 22. JetSTARExpectation | Actual | Unhappiness$178 X 2 = $356 | $636 less $60 food = $ 565 | $565 – $358 = $207
    • 23. JetBLUE$49 X 2 = $98 | Final Price $97.60 | Difference $ 0
    • 24. #2THERE IS NO ONE WINNING STRATEGY ON
    • 25. What worked for eBaydid not work as efficiently for Amazon.
    • 26. What worked yesterday might not work so well tomorrow.
    • 27. PRICING mechanism.When it comes to pricing, the three key approaches that have beenmost widely practiced: Competitive Market Value Cost-plus Pricing Pricing Pricing Considers competitors Considers the pricing for like goods currently accepted Starts from a basis of within the market price by consumers. the seller’s cost of space. The seller then The sellers maintain a goods then adds a adjust prices to lure pulse of what the profit percentage to market is bearing for arrive at a selling customers, most goods, and set their price. Also known as often with a “lowest prices at, or very “markup pricing”. price” appeal. near, to that target. This is MATHS
    • 28. PRICING Strategies. Price Leader Price Matching Price Undercutting Lost Leader Close Out and Sale Price
    • 29. PRICING behavior. Kate McFarlin Demand Media
    • 30. Professor Dan Ariely Dans talks on TED have been watched 2.8 million times. He is the author of “Predictably Irrational” and “The Upside of Irrationality”, both of which became New York Times best sellers. Professor of Psychology and Behavioral Economics
    • 31. Cost of Zero Please mouse-over the video to “play”.This is a video clip from Duke University website. Copyright and ownership of thisvideo belongs to Duke University.
    • 32. Vistaprint: FREE Products, Just Pay Shipping
    • 33. Coastal.com : FREE Glasses (Just pay Shipping)
    • 34. PRICING strategies.The introduction of the internet has given rise to anincrease in the range and style of ecommercepricing strategies.  It is the oldest Pricing Strategy. Fixed price approach are adopted by offline  The price remains fixed businesses. for a certain period or till goods last.  A fixed price minimizes Offline business are also moving towards customers uncertainty dynamic pricing. of a final price. A dynamic pricing model involves varying the prices of goods or services based on variables such as season, availability and production costs.
    • 35. DYNAMIC pricing.The airline industry pioneered this model and it is nowused by other industries, including retail sales.
    • 36. DYNAMIC pricing. DYNAMIC pricing – Prices change or fluctuate due to different variables, conditions, and situations. Forces of DEMAND and SUPPLY. High demand increase price. Low demand adjust prices downward to stimulate more purchases. IBM, HP, and Dell were all looking into dynamic pricing approaches for their e-commerce operations since early 2001. Different factors motivated: price of memory product life cycle "contextual pricing” chips and purchase cost affects and demand what customers paid processors overall.
    • 37. DYNAMIC pricing.  Frequently varying online prices in response to changing market conditions  will maximize returns and  may create competitive advantage. High Price, Optimum $ Lower Cost Inventory useMaximize Returns $ HIGH DEMAND Higher Sales, Use of inventory, Availability LOW DEMAND Maximize Returns Fair Price
    • 38. DYNAMIC pricing.Features Consumers are willing to pay different prices at different times or in different situations. A traveler buying an airline ticket three months in advance expects to pay less for that ticket than a traveler purchasing a ticket at the last minute.Benefits Allows sellers to tailor their marketing or inventory to the needs of their customers.Considerations Customers enjoy feeling as if theyve gotten a bargain, and this feeling increases customer loyalty. However, seeing an item priced at $50 when they paid $100 for it the month before has the opposite effect.
    • 39. DYNAMIC pricing.The modern airline industry has gone throughnumerous changes since the late 70s.Since the deregulation in 1978, U.S. airlineshave been employing dynamic pricing.
    • 40. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
    • 41. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
    • 42. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
    • 43. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
    • 44. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. PaymentBy default $20 was added to your totalprice. One needs to specifically removefrom booking.
    • 45. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment We charge a Booking and Service Fee for some bookings completed online. We actively encourage our customers to paySGD $17.00 per using one of thepassenger per payment methods forbooking applies for which no BookingVisa Credit Cards and Service Fee applies.
    • 46. Expectation$356 1. Search FIXED PRICE 1. Fare based on date & time. $986 2. Bundled Options – 2. Select Flight Seat, food 1. Baggage 2. Comfort me 3. Feed me $2,034 4. Bundle: Hotel 3. Passengers Seat Options 4. Seats $17 - $30 per flight $2,034 Travel Insurance 5. Extra $20 per pax $2,056 Credit Card Fees $17 per pax 6. Payment $2,073
    • 47. DYNAMIC pricing. The “perishable inventory” products i.e. Airlines Seats, hotel rooms – there is just no doubt on the value of dynamic pricing. What about e-retailers?
    • 48. DYNAMIC pricing.Three different types of dynamic pricing. Time-Based Pricing - different prices customers are willing to pay at different times. Clearance pricing (JC penny, GAP) Segmentation and rationing – willingness of customers to pay through different channels, at different times and with different levels of effort. Airlines Dynamic merchandising - Internet-enabled capacity to change prices rapidly and frequently to offer customers different products, promotions, delivery options and pricing as supply and inventory change. Amazon.comThese various dynamic pricing strategies can be combined or usedseparately, depending on the situation.
    • 49. DYNAMIC pricing. JC Penny.com Time-Based Pricing - different prices customers are willing to pay at different times. Clearance pricing
    • 50. PRODUCT bundling.Singtel’s Bundle plan’s not only make it competitive but also helps it increase thecustomer base.
    • 51. PRODUCT bundling.One of Singapore Airlines Holiday package (Bundle)
    • 52. AuctionAn auction is where a seller places any item for sale with no definiteprice for an item (or with reserve price). The price are determined bybidders interested in buying the items.ubid.com; amazon.com; ebid.net; oztion.com.au; google.com/products
    • 53. some golden rules ……… No pricing battle with your competition. Unless you’re1 Margins. Margins. Margins bringing in the traffic you need to justify any lowering of price, you could be losing money. “Why will our customers continue shopping with us?”2 Unique Selling Proposition For Zappos, it is their unbelievable customer service. Let’s sell something at a ridiculously discounted rate3 The Loss Leader Strategy and hope that customers purchase more once they are in the door. Doesn’t always work. After you are comfortable with margins and have4 Incentivize Your Customers figured out a pricing strategy, it is time to motivate your customers to open their wallets. You will need to measure and test each strategy you5 Test and Test and Test implement to see what works and what fails. Use tools like Google Analytics.
    • 54. Copyright & Disclaimer This presentation was delivered (without any commercial benefits) at the 2nd Asia e- Commerce Conference held on the 5th-6th November 2012 at Kuala Lumpur. Research on the topic was gather from various sources, including the web. Please honor 3rd party copyright requirements. Some of the images used in this presentation has been taken from the manufacturers web site. These images have been used on a non-commercial basis only for this specific presentation. The copyright of these images belong to the respective manufacturers/web site owners. The views expressed in this presentation is that of the speaker “Suraj Mishra” and not the company “Aprikot Pte Limited”. The speaker, however did not make any concluding statement, left it to the audience to select what is relevant and best winning strategy for them. The examples in the presentation is showcase “pricing strategy”, not to make any judgment call on quality of pricing strategy adopted by a company.
    • 55. Thank you