VideoEgg is an online video advertising company founded in 2004 by three Yale graduates. It delivers ads to social media, video, and gaming sites. VideoEgg created AdFrames that allow users to roll over ads to watch sponsored content. Unlike traditional CPM or CPC models, VideoEgg charges advertisers $0.75 per user roll over, splitting the fee with content sites. This innovative pricing scheme differs from standard online advertising models.

1. E-MARKETING, 6TH
EDITION
JUDY STRAUSS AND RAYMOND FROST
Chapter 10 - Price - The Online Value

2. What Is Price?
Promotion
Place (Distribution)
Price
Product
Amount of
money
charged for
a product
or service

3. The VideoEgg Story
 The video and rich media advertising company was founded in
2004 by 3 Yale graduate students.
 VideoEgg delivers ads to social networking sites, video sites,
and gaming applications.
 VideoEgg created AdFrames, which allow video viewers to roll
over and watch ad-sponsored content.
 Online advertising is bought and sold on a CPM (cost per 1,000
impressions) or pay-per-click model (PPC).
 In contrast, VideoEgg charges advertisers based on user
engagement (roll over action) with the ad.
 VideoEgg’s innovative pricing scheme is $0.75 per roll over,
which it splits 60/40% with the site owner.

4.  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.
The Internet Changes Pricing
Strategies

5. Buyer & Seller Perspectives: Buyer
View
 The meaning of price depends on the viewpoint of
the buyer and the seller.
 Buyer’s costs may include money, time, energy, and
psychic costs.
 But they often enjoy many online cost savings:
 The Net is convenient and fast.
 Self-service saves time.
 One-stop shopping and integration save time.
 Automation saves energy.

6.  The shift in power from seller to buyer affects pricing
strategies.
 In the B2B market, buyers bid for excess inventory.
 In the B2G market, government buyers request proposals
for materials and labor.
 Buyers set prices and sellers decide whether to
accept the prices in a reverse auction.
 Buyer power online is also based on the huge
quantity of information and products available on the
Web.
 Beware of “the winner’s curse”
Buyer Control

7. 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
 Pricing objectives may be: profit oriented; market
oriented; competition oriented
 The Internet is only one sales channel and must be
used in concert with other marketing mix elements.
 Information technology can place both upward and
downward pressure on prices.

8.  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.
The Internet Puts Downward Pressure
on Prices

9. The Internet Puts 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.
 Customer acquisition costs (CAC).
 The average CAC for early online retailing was $82.

10.  Market structure and market efficiency affect pricing
strategy.
 The seller’s ability to set prices varies by market
type:
 Pure competition.
 Monopolistic competition.
 Oligopolistic competition.
 Pure monopoly.
 If price transparency results in a completely efficient
market, sellers will have no control over online
prices.
External Factors Affect Online
Pricing

11. 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 between highest and lowest price
for a product.

12. Efficient Markets Mean Loss of Pricing
Control
Pure monopoly
Oligopolistic competition
Monopolistic competition
Pure competition
Government control
Market control
Area of control for
e-marketing pricing strategy
Efficient market

13.  External market factors place downward pressure on
prices and contribute to efficiency.
 Shopping agents such as PriceScan.
 High price elasticity.
 Reverse auctions.
 Tax-free zones.
 Venture capital.
 Competition.
 Frequent price changes.
 Smaller price change increments.
Is the Net an Efficient Market?

14.  The internet does not act like an efficient
market regarding narrow price dispersion.
 In two studies, greater price spread was found
for online purchases than for offline
purchases.
 Price dispersion may occur because many
buyers do not know about or use shopping
agents.
Is the Net an Inefficient Market?

15. Is the Net an Inefficient Market?
 Price dispersion may also relate to other issues:
 Brand strength.
 Online pricing.
 Delivery options.
 Time-sensitive shoppers.
 Differentiation.
 Switching costs.
 Second-generation shopping agents.
 The internet is not an efficient market.

16. Payment Options
 Electronic money uses the internet and computers to
exchange payments electronically.
 Other off-line e-money payment systems include:
 Smart chips.
 Payment by cell phone.
 PayPal has become the industry standard with over
84 million accounts worldwide.

17. PayPal Account Options (Exhibit
11.6)

18.  Price setting 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.
Pricing Strategies

19. Fixed Pricing
 Fixed pricing (menu pricing) is when
everyone pays the same price.
 Two common fixed pricing strategies are:
Price leadership.
Promotional pricing.

20. Dynamic Pricing
 Dynamic pricing is the strategy of offering
different prices to different customers.
 Firms use dynamic pricing strategy to optimize
inventory management and to segment
customers.
 Airlines have long used dynamic pricing to price
air travel.
 There are 2 types of dynamic pricing:
 Segmented pricing.
 Negotiation.

21.  Pricing levels are set based on order size, timing,
demand, supply, or other factors.
 Segmented pricing is 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 firm must be careful not to upset customers.
Segmented Pricing

22.  Geographic segment pricing
 Pricing differs by geographic area.
 May vary by country.
 May reflect higher costs of transportation, tariffs,
margins, etc.
 Value segment pricing
 Recognition that not all customers provide equal value to
the firm.
 Pareto principle: 80% of a firm’s business comes from
the top 20% of customers.
 Customer value segments
Segmented Pricing, cont.

23. 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, consumers enjoy the sport
and community while others are just looking
for a good deal.
B2B auctions are an effective way to unload
surplus inventory.

24. Renting Software
 Software companies sometimes
decide to rent rather than sell
software to customers.
 Renting software is analogous to
leasing cars.
 Salesforce.com rents a leading CRM
software system.

25. Prepare “Radiohead: Music at
Your Own Price” case for
tomorrow class.