ELC 310 Day 13 ©2006 Prentice Hall

Agenda Assignment 3 posted Exam # 2 will be on October 24 Due Oct 20 (next class) Exam # 2 will be on October 24 10 M/C (40 points) and 6 Essays (60 points) from chapters 6-11 Open book, open notes 70 Min You should be working on your eMarketing Plans Due Oct 31, In class Presentations of your marketing plans will on be on Oct 31 Today’s discussion is on Product & Price (part of Tier 2) in Chaps 10 & 11 ©2006 Prentice Hall

©2006 Prentice Hall

Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes ©2006 Prentice Hall

E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 10: Product ©2006 Prentice Hall 10-1

Chapter 10 Objectives After reading Chapter 10 you will be able to: Define product and describe how it contributes to customer value. Discuss how attributes, branding, support services, and labeling apply to online products. Outline some of the key factors in e-marketing enhanced product development. Identify the six categories of new-product strategies and the six classifications for a suggested Internet product taxonomy. ©2006 Prentice Hall 10-2

The Google Story In 1998, co-founders Brin and Page delivered an innovative new search strategy that ranked results on popularity as well as keywords. Generates revenue from two B2B markets: Licensing of its search services. Sales of keyword banners to advertisers. Innovative products and strong customer focus are driving its success and profitability. Go to Google.com and explore Froogle, GMail and the Tool Bar. Do you agree that they are highly innovative products? ©2006 Prentice Hall 10-3

Many Products Capitalize on Internet Properties A product is a bundle of benefits that satisfies needs of organizations or consumers. Includes tangible goods, services, ideas, people and places. Products such as search engines are unique to the Internet while others simply use the Internet as a new distribution channel. ©2006 Prentice Hall 10-4

Creating Customer Value Online Customer value = benefits - costs Product decisions must be made that deliver benefits to customers: Attributes Branding Support Services Labeling Packaging ©2006 Prentice Hall 10-5

1. Attributes Attributes include quality and features. The Internet increases customer benefits in many ways. Media, music, software and other digital products can be presented on the Web. Mass customization is possible. User personalization of the shopping experience can be achieved. ©2006 Prentice Hall 10-6

2. Branding A brand includes a name, symbol or other information. A brand represents a promise or value proposition to its customers. Brand equity is the intangible value of a brand, measured in dollars. eBay, Yahoo! and Amazon rank among the top 100 brands in the U.S. A great brand taps into popular culture and touches consumers. ©2006 Prentice Hall 10-7

Brand Relationships Exhibit 10.4 displays 5 levels of brand relationship intensity. ©2006 Prentice Hall 10-8

Branding Decisions for Web Products Firms can use existing brand names or create new brands on the Internet. Some firms may use different names offline and online to avoid risk if the new product or channel should fail. Sports Illustrated created thriveonline.com. Wired Magazine changed its online version name to Hotwired. ©2006 Prentice Hall 10-9

Creating New Brands for Internet Marketing Good brand names should: Suggest something about the product. Differentiate the product from competitors. Be capable of legal protection. Be short, memorable, easy to spell and translate well into other languages. Cobranding occurs when two companies put their brand names on a product: Yahoo! Visa shopping pages EarthLink-Sprint ©2006 Prentice Hall 10-10

Internet Domain Names A URL (Uniform Resource Locator) is a Web site address. Also called an address or domain name. www.umfk.maine.edu Domain names contain several levels. The second-level is often the name of the company. The top-level may be .com or a country name, such as .mx for Mexico. ICANN is a nonprofit corporation that makes decisions about protocol and domain name assignment, registration, etc. ©2006 Prentice Hall 10-11

Largest Top-Level Domain Names Domain Designation Top Level Domain Name Number of Hosts (millions) net Networks 103.0 com Commercial 94.7 jp Japan 13.1 edu Educational 7.8 it Italy 5.5 uk United Kingdom 4.3 ca Canada 3.6 de Germany 3.5 nl Netherlands ©2006 Prentice Hall 10-12

Registering a New Domain Name Sites such as VeriSign provide domain registration services. More than 97% of words in the dictionary have already been registered as domain names. Picking the right domain name can make a huge difference. Directing people correctly to a site. Building consistency in marketing communications. ©2006 Prentice Hall 10-13

Registering a New Domain Name What happens if the firm name has been registered by someone else? Come up with alternative names: DeltaComm, a software developer was the first to register www.delta.com before Delta Airlines (originally www.delta-air.com), Buy the name from the currently registered holder. Bob.com Many creative Netizens register lots of popular names and offer them for sale at prices of up to millions of dollars: GreatDomains.com allows users to buy and sell popular domain names. Name squatters ©2006 Prentice Hall

Have an Extra $1.5 Million to Spare? Buy www.ad.com. Source: GreatDomains.com ©2006 Prentice Hall

©2006 Prentice Hall

3. Support Services Customer support is a critical component in the value proposition. Customer service reps help customers with installation, maintenance, product guarantees, etc. to increase customer satisfaction. CompUSA combines online and offline channels to increase customer support. ©2006 Prentice Hall 10-14

4. Labeling Labeling has digital equivalents in the online world. Online “labels” provide information about installing and using software. Online “labels” also provide extensive legal information about the software product. Online firms may add the Better Business logo or TRUSTe privacy shield to their sites. ©2006 Prentice Hall 10-15

Microsoft’s Terms of Use Label ©2006 Prentice Hall 10-16

Customer Codesign Business and consumer collaborations are possible on the Internet. Software developers often seek customer input about new products. They often allow users to download new products, test them, and provide feedback. Customer interaction has been found to increase product success. Amazon seeks customers’ product reviews. Latest Internet C0-design product Skins http://www.skinit.com/ http://www.designerskins.com/?gclid=CIa83OCsgIgCFRyPFQodXwbz9A ©2006 Prentice Hall 10-17

Product Mix Strategies Companies can choose among six categories of new-product strategies. Firms will select one of the following strategies, based on marketing objectives, risk tolerance, resource availability, etc. Discontinuous innovations: new-to-the-world products. TV, CD’s New-product lines: new products in a different category for an existing brand name. Microsoft IE’s, Honda’s Ridgeline Truck ©2006 Prentice Hall 10-18

Product Mix Strategies, cont. 3. New variation of a current product line. On-line stock trading 4. Improvements or revisions that replace an old product. “new and improved” Ford hybrid Escape 5. Current products targeted to different markets or promoted for new uses. Yahoo! (search->Portal->Life Engine) http://www.clickz.com/news/article.php/3335951 6. Me-too lower-cost products. Apple iPod Clones ©2006 Prentice Hall 10-19

Taxonomy of Internet Products Content Provider B2B Market Internet Infrastructure End User B2C and C2C Markets Hardware Server farm, high- speed switch Router, satellite, fiber-optic backbone Modem, PC, WebTV, PDA, assistive technologies convergence products Software Web authoring, encryption, audio/video digitizing enabling software Protocols, TCP/IP, DNS Web browser, e-mail client, decryption, audio/video player software Services E-commerce consulting, Web development, Web design, application service providers ISP, backbone service provider, Web hosting Web-based virus scan, auto updates, calendaring, e-mail Products can be classified according to the customers to whom they appeal. ©2006 Prentice Hall 10-20

E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 11: Price ©2006 Prentice Hall 11-1

Chapter 11 Objectives After reading Chapter 11 you will be able to: Identify the main fixed and dynamic pricing strategies used for selling online. Discuss the buyer’s view of pricing online in relation to real costs and buyer control. Highlight the seller’s view of pricing online in relation to internal and external factors. Outline the arguments for and against the Net as an efficient market. ©2006 Prentice Hall 11-2

The AOL Story AOL’s subscription growth has slowed. 33 million subscribers in 2001 has declined to 20 million in 2004. International expansion has not spurred growth. AOL wants to build more wallet share by adding interactive entertainment, communication services and information products. AOL hopes to increase customer revenue from $19.95/month today to $159/month for a menu of services in the future. ©2006 Prentice Hall 11-3

The AOL Story, cont. They plan to price broadband services at $30/month to build market share. AOL believes customers will pay for other services, such as $20 to add other household computers. $20 to download music. $20 to access the Net from cell phones, etc. Do you think that AOL’s pricing strategy makes sense in today’s competitive online environment? Why or why not? ©2006 Prentice Hall 11-4

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 (19th Century) idea. Results of mass manufacturing and mass retailing The Internet is taking us back to an era of dynamic pricing—varying prices for individual customers. The meaning of price depends on the viewpoint of the buyer and the seller. ©2006 Prentice Hall 11-5

Buyer View Buyer’s costs may include time, energy and psychic costs. But they often enjoy many online cost savings: The Net is convenient. The Net is fast. Self-service saves time. One-stop shopping saves time. Integration saves time. Automation saves energy. ©2006 Prentice Hall 11-6

Buyer Control The change in power from seller to buyer affects pricing strategies. Buyers set prices and sellers decide whether to accept the prices in a reverse auction. Request for Proposal Request for Bids Buyer power online is also based on the huge quantity of information and products available on the Web. ©2006 Prentice Hall 11-7

Seller View 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. ©2006 Prentice Hall 11-8

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 is $82 for online retailers. ©2006 Prentice Hall 11-9

The Internet Puts 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. ©2006 Prentice Hall 11-10

External Factors Affect Online Pricing Market structure and market efficiency affect pricing strategy. The seller’s ability to set prices varies by market type: Pure competition. Commodities <> wood prices Monopolistic competition. Car Sales <> subcompact/compact/sedan/sports/luxury Truck sales <> worktruck/dressed-up truck/sport truck/SUV/luxury Oligopolistic competition. Oil Companies Pure monopoly. At one time AT&T, Microsoft?? ©2006 Prentice Hall 11-11

Efficient Markets A market is efficient when customers have equal access to information about products, prices and distribution. (Price transparency) 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. ©2006 Prentice Hall 11-12

Efficient Markets Mean Loss of Pricing Control ©2006 Prentice Hall 11-13

Is the Net an Efficient Market? 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 reduce out of pocket expenditures. Venture capital availability. Competition. Frequent price changes. Smaller price changes. ©2006 Prentice Hall 11-14

Is the Net an Inefficient Market? 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 the online channel is still not completely mature. Price dispersion may also relate to other issues: Brand strength. Delivery options. Time-sensitive shoppers. ©2006 Prentice Hall 11-15

Pricing Strategies 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 (menu pricing) is when everyone pays the same price. Two common fixed pricing strategies are: Price leadership. (Cheapest, Best Value) Promotional pricing. ©2006 Prentice Hall 11-16

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. So have Hotels/motels There are 2 types of dynamic pricing: Segmented pricing. Negotiation. ©2006 Prentice Hall 11-17

Segmented Pricing Pricing levels are set based on order size, timing, demand, supply or other factors. Pricing according to customer behavior segments 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. ©2006 Prentice Hall 11-18

Segmented Pricing, cont. 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. ©2006 Prentice Hall 11-19

Customer Value Segments ©2006 Prentice Hall 11-20

Negotiated Pricing Through negotiation, the price is set more than once in a back-and-forth discussion. Online auctions utilize negotiated pricing. Consumers enjoy the sport and community. B2B auctions are an effective way to unload surplus inventory. ©2006 Prentice Hall 11-21

Bartering Goods or services are exchanged for other products rather than cash. Users of bartering may enjoy tax benefits. Bartering is not a profitable pricing strategy. Exchanging or auctioning used items online can hurt sales of new products. ©2006 Prentice Hall 11-22