Download - Pricing in an Online World
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Pricing in an Online World
指導教授 : 任立中
學生 :楊智富 88751225陳德勝 88751233鐘國彰 88751236
高哲惠 88751239陳銘驥 88751242
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AGENDA
Concept of Mark-up RateGeneral Pricing ApproachesEmpirical Pricing ApproachesDrucker’s Pricing SinsThe power of pricingPrice sensitivity and the InternetReal-time pricingBundling
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)1ε
ε(
= Mark-up Rate
)(p η1
P
Cp**
*
)1ε
ε( MCP*
Where,
Concept of Mark-Up Rate (I)Price Sensitivity and Price Elasticity
)( *
*
P
Cp = Contribution Margin Ratio
= - (Price Sensitivity)
= - > 1 (Price Elasticity)
C = MC (Marginal Cost)
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)1ε
ε(MCP*
If, = 2,Mark-up Rate = 2P* = 2 MC
Concept of Mark-Up Rate (II)
Pure Monopoly Industry
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If, >> 1, Mark-up Rate 1P* = MC
Concept of Mark-Up Rate (III)
Pure Competitive Industry
)1ε
ε(MCP*
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General Pricing Approaches
Approach Pricing
1. Cost-Based Cost-plus pricing (Mark-up) Target profit pricing (Break-even analysis)
2. Buyer-based Perceived-value pricing (Demandbackward)
Value pricing (Everyday low pricing vs.High-low pricing)
3. Competition-based Going-rate pricing (Based on competitor’sprice or industrial average price)
Sealed-bid pricing (Cost and competitor’sprice)
(Source: “Principles of Marketing” --- Kotler & Armstrong)
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Empirical Pricing Approach
Cost Mark-up Method Pursue Bigger Market Share
Target Profit Pricing
**
Q
ProfitTotalCostP
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New-Product Pricing
Premium Price Good-ValuePrice
OverchargingPrice
Economy Price
High Low
High
Low
Pricing
Qu
alit
y
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Patent-Protection / Leading Product Pricing
Pricing TypicalCompany
1. Market-Skimming INTEL
2. Market-Penetration DELL
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Product Mix Pricing
Pricing Typical Company1. Product line Kodak’s Films
2. Optional-Product GM’s Automobiles
3. Captive-Product Nintendo’s Game Station andCartridge
4. Two-Part Telephone Company
5. Product-bundle Travel Agent
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Drucker’s Pricing Sins
Pricing Sin Reason1. The Worship of Premium Pricing
Companies try too hard to hold onto high profit margins with small sales
2. Skim Pricing of New Products
Companies serve the most desirable segment first and forget to adapt to the main stream
3. Cost-Driven Pricing Cost is internal to the firm, but value is the only thing the customer cares about
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The Power of Pricing (I)
1. Proper pricing must reflect changes brought about by the Internet2. Pricing is Tightly Linked to Profitability
(The High Leverage of Proper Pricing)
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Price Sensitivity & the Internet (I)(Price Sensitivity and Online Information)
Common Perception
Internet always raiseconsumer price sensitivity
Some Companies Can Get Higher Price /Profit
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Price Sensitivity & the Internet (II)(The Effects of Price Sensitivity on Internet)
Effect Price Sensitivity Willingness toPay
Company /Service
Unique Value Lower Higher Oracle: ConsultingSubstituteAwareness
Higher Lower Price Watch: Informationintermediary
TotalExpenditure
Higher(Larger Parts)
Lower Healthcare:www.prefix.com/Diabetic.htm
Shared Cost Higher(Decider =Payer)
Lower Hyatt Hotel:Amenities vs.Price
Price-Quality Lower(Well-know brand )
Higher Charles SchwabVs. Ameritrade
Inventory Lower Lower Multimedia Software
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ORACLE.com
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PriceWatch.com
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Prefix.com
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Setting Prices is Difficult if: Don’t know their demand curves Different customers pay different prices Customers buy multiple products that are linked to each other
Under Rapidly Changing Conditions: Can’t figure out price elasticity
Solution ?
(Why Simple Pricing Approaches Fail ? )Price Sensitivity & the Internet (III)
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Real-Time Pricing (I)
AuctionsRental MarketsYield Management
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Real-Time Pricing (II)Online Auctions ( Christie’s Web)
Evolving toward OnlineAuction
Physical AuctionEnabler
Absentee BiddingAllowed
Consignment SellingWith Online Purchase
English Auctions•Most common•Rising prices
Dutch Auctions•Good for multiple items•Especially perishable goods
Fully Online Auctions
Figure 11.11
eBay.com, OnSale.com, FirstAuction.com
American Clock (flower importer), Dutch flower market
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ebay.com
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TheAmericanClock.com
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CHRISTIEs.com
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FCC.com
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Real-Time Pricing (III)
Benefit Reason
1. In-depth Information In-depth information is available tobidders
2. Communication Confused bidders can call or e-mailfor more information
3. Bidder Anywhere Participants can join in fromanywhere on the planet
4. Expand the Number of bidder
Raises the price paid and theprofitability of the auction
Online Auctions ( Benefit)
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Real-Time Pricing (I)
AuctionsRental MarketsYield Management
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Real-Time Pricing (IV)
Benefit Reason1. Immediate Needs The rental market serves
customers’ immediate needs
2. More Efficiency More efficient because the buyerpays a fee for each use rather thanpaying a large lump sum forunlimited use
Online Rental Markets (Benefits)
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Real-Time Pricing (V)Online Rental Markets (Barriers)
Barrier Reason1. Credibility Both buyers and sellers must trust
the broker
2. Micro- transactions
The lack of willingness of sellers touse micro-transactions
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IBM.com
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Real-Time Pricing (I)
AuctionsRental MarketsYield Management
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Real-Time Pricing (V)
Yield managementYield management is the matching of price and available capacity
Price Available Capacity
Yield Management
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Real-Time Pricing (VI)Yield Management (Requirement)
Requirement Key Success Factor
1. Fixed and perishable capacity
The good must lose 100% of its valueat a specific point in time.
The industry should face high fixedcosts.
2. Customer base with Identifiable segments:
Give price sensitive customers a breakwithout causing a loss of customerswilling to pay full price
3. Demand uncertainty +information technology
Tracking is necessary to ensure properyield management (made easier byusing company web sites)
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Bundling (I)
Bundling works particularly well onlineBundling is the combination of products into
larger packagesA single fee gives users access to entire product offering--- AOL
What is Bundling ?
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DealTime.com
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PlacesToStay.com
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Bundling (Demand Side)
Bundling (II)
Willingness to payConsumer Type
1995Chevrolet
1995ThunderBird
Bundle
Consumer 1:Own Chevrolet
$30 $20 $50
Consumer 2:Own ThunderBird
$18 $35 $53
Total Revenue:Priced Individually
$36 $40
Willingness to payConsumer Type
1995Chevrolet
1995ThunderBird
Bundle
Consumer 1:Own Chevrolet
$30 $40 $70
Consumer 2:Own ThunderBird
$18 $35 $53
Total Revenue:Priced Individually
$36 $70
Negative Correlation:Bundled Revenue=$100Has real opportunity to raise profits
Positive Correlation:
Bundled Revenue=$106
(Source: “Price Theory and Application” --- B. Peter Pashigian)
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Bundling (III)On-Line Bundling (Supply Side)
Guideline Condition
1. Margin SpreadBundling
Bundle items thathave a highcontribution marginratio
Creates incentive forincreasing volume
2. AggregationBundling
Target the bundletoward the averagecustomer
Increases customerdemand for the
bundled good
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20 M
agaz
ine
2 M
agaz
ine
1 M
agaz
ine
Consumer Variationsfor Bundle
The BundleDemand Curve
Bundling Works Well When the
Bundle is Viewed More Similarly than
Individual Items
Figure 11.16
Bundling (IV)
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Thanks
指導教授 : 任立中
學生 :楊智富 88751225陳德勝 88751233鐘國彰 88751236
高哲惠 88751239陳銘驥 88751242