1. Price Chapter Ten

2. Copyright © Houghton Mifflin Company. All rights reserved.10–2 Chapter Ten Learning Objectives To identify factors that affect how Internet prices are set To learn about online price issues that concern consumers and enterprises To identify alternate Internet pricing models and understand why some price strategies are successful and others are not To examine Internet payment alternatives and determine how buyers can pay for products online

3. Copyright © Houghton Mifflin Company. All rights reserved.10–3 Price Fundamentals Price - how much buyers are willing to give up of something they value to take possession or use a product Price allocates products; clears markets Supply & demand relationship Price - potent online competitive tool

4. Copyright © Houghton Mifflin Company. All rights reserved.10–4 Price Fundamentals: Digital Cost Structure Fixed Cost Sunk Cost Variable Cost Marginal Cost Product Differentiation via Price

5. Copyright © Houghton Mifflin Company. All rights reserved.10–5 Price Fundamentals (contd) Price sensitive consumers seek out online bargains Some consumers prefer convenience, will pay more for it Price conscious consumers attracted by sales, balanced by other factors Internet facilitates price comparisons

6. Copyright © Houghton Mifflin Company. All rights reserved.10–6 Price Fundamentals (contd) Customer value The Pareto Principle or 80-20 rule –Best customers, top 20 percent Operational data tools, data mining, query systems can identify top 20 percent Identifies customers who will respond to price promotions, real-time price changes Lifetime value of best customers

7. Copyright © Houghton Mifflin Company. All rights reserved.10–7 Price Fundamentals (contd) Internal objectives Buyer segments served Demand Cost State of the economy Consumer confidence Competitors Product newness Free alternatives Channel members Government Special events Seasons Promotions Weather Factors Influencing Setting Online Prices

8. Copyright © Houghton Mifflin Company. All rights reserved.10–8 Price Fundamentals (contd) Is there really an online first mover advantage? Many first movers set prices too low Free shipping & handling widespread Lots of free or at cost product offers Attracted bargain hunters Burned through cash Crashed Less irrational pricing now

9. Copyright © Houghton Mifflin Company. All rights reserved.10–9 Price Fundamentals (contd) Online/offline price consistency –If not consistent, must explain why Price setting within acceptable range –Set close to ceiling –Pricing flexibility essential online because of ease of making online price comparisons, rapid competitive price changes Internet allows real time price testing

10. Copyright © Houghton Mifflin Company. All rights reserved.10–10 Price Issues Downward pressure or not? Initial expectations of a price utopia Offline price information asymmetry Online price information symmetry Downward price pressure online far less apparent than anticipated

11. Copyright © Houghton Mifflin Company. All rights reserved.10–11 Price Issues (contd) Price transparency Search sites Internet access pricing Price fairness Shipping & handling Cross-border pricing Illegal price practices online –Auction fraud is biggest source

12. Copyright © Houghton Mifflin Company. All rights reserved.10–12 Alternative Price Models Fixed prices and negotiated prices Demand collection - name your own price Online barter Single channel, multichannel, multitier prices Dynamic and test prices Bargain prices Estimators Demand aggregators

13. Copyright © Houghton Mifflin Company. All rights reserved.10–13 Payment Strategies (contd) Credit and smart cards Alternate payment systems Micropayments –Paypal –Yahoo! Wallet –Honor systems Online bill management –Beginning to show growth