R ETAILING I NSIGHTS AND P RICING O NLINE Getting Prices Right on the Web W HAT M ATTERS M OST IN I NTERNET R ETAILING Although online retailers theoretically have unlimited trading areas, they need to know where to look for customers. W HAT M ATTERS M OST IN I NTERNET R ETAILING While traditional retailers can identify and target customers with relative ease (most customers either work or live within a few miles of the store), Internet retailers without physical stores find this much more difficult to do. W HERE TO LOOK FOR C USTOMERS ? Many Internet retailers have trouble getting noticed and acquiring customers. W HERE TO LOOK FOR C USTOMERS ? Indeed, having an unlimited trading area can be a mixed blessing: There are no straightforwar d rules about where to look for customers. W HERE TO LOOK FOR C USTOMERS ? As a result, some Internet retailers are making small forays into traditional retailing, using strategies that include pop-up stores, kiosks and partnerships with well- known retailers. W HAT R ESEARCH T ELLS U S Individual consumer acceptance depends on off line shopping costs. W HAT R ESEARCH T ELLS U S Sales evolution is structured and predictable. W HAT R ESEARCH T ELLS U S Migrating from good to great requires expansion to niche locations. W HAT R ESEARCH T ELLS U S Isolated prospects are worth pursuing. W HAT R ESEARCH T ELLS U S Different locations require different customer acquisition strategies. T AKE -A WAYS the physical environment Although Internet retail success is influenced by many factors (incl. website design, social media strategy and marketing innovations) Internet retailers must pay particular attention to the physical environment. low-hanging fruit A large amount of low-hanging fruit is available to those who understand how sales vary according to ZIP code or neighborhood. two critical properties The physical environment has two critical properties that make research both doable and actionable: measured relatively easily (1) variation in the characteristics of the physical environment can be measured relatively easily and cheaply, often by using data from government sources. dont change quickly (2) physical environments dont change quickly, which means that actionable insights tend to have a long shelf life. P RICING S TRATEGIES 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 BUT with a twist! P RICING S TRATEGIES T HEORY : R EFERENCE P RICING AND P RICE A NCHORS Every product has a price range, within which changes have little impact on consumer behavior. For example: Prices for well-known brand-name consumer health and beauty products can be raised as much as 17 % without a change in consumer reaction. NOT SENSITIVE/LOW ELASTICTY Range in which price variations acceptable for certain financial services is less than 1 %. SENSITIVE/HIGH ELASTICTY K EY Q UESTIONS FOR S ETTING P RICE Do you sell a commoditized product/service or not? Price vs. quality differentiation? Do you have a strong store brand? Service leader? Penetrate or skim? Bundle strategy? Do you have a new or exclusive product? B AYE AND G UPTA online retail industry is an unpromising one for firms seeking competitive advantage fluid What innovations in pricing strategy are required for a firm to be successful in fluid e-retail markets? G ROUP F ACE - OFF : Why is pricing such a challenge in online markets? P RODUCT L EVEL P RICING ease with which online consumers and rival retailers may access comparative information about seller characteristics and prices customers often search at the product level rather than by store or category P RODUCT L EVEL P RICING Consumers are more selective in online markets Frequent price changes feasible G ROUP F ACE - OFF : Why is pricing such a challenge in online markets? G ROUP F ACE - OFF : Why is pricing such a challenge in online markets? G ROUP F ACE - OFF : When should a product/ser vice be free? G ROUP F ACE - OFF What are network effects? G ROUP F ACE - OFF In what ways do network effects affect pricing strategy? 5 P RICING I NNOVATIONS price experimentation Use price experimentation to learn about your Customers Price Sensitivity/Price Elasticity stage of PLC Quickly adjust price based on stage of PLC (price sensitivities) number of competitors Quickly adjust price based on number of competitors Unpredictable Stay Unpredictable Temporary Advantage Use Hit-and-Run Pricing to Gain a Temporary Advantage without Triggering a Price War Y OU TELL ME : What is strategic about frequent price changes online? Is it good enough to be second lowest offer? C ONCLUSION ON P RICING Product-specific pricing Dynamic/erratic pricing can be strategic Shortened PLC means higher price sensitivity requires quicker modulation Free may have value network effects in two- sided markets! Online pricing often the domain of lower management levels but when doing business online that may be a problem. C ONCLUSION Managerial Challenges: Best e-businesses set up small functional e- marketing groups charged with the task of constantly monitoring opportunities to adjust prices based on market changes and customer behavior. Group members should hold an entrepreneurial view of pricing. Group should be empowered to set short- to medium-term pricing strategy and implement it.