MSc in Digital Marketing Week 7
Note: these notes are aimed as a memory mnemonic for my MSc in Digital Marketing
Week 7 – Pricing
Pricing can be highly tactical & the most flexible tool in the marketing mix.
Price change can have immediate impact e.g. 1% price change has 20xgreater effect on sales than 1% change in ad budget (price elasticity)
However this mad stat of course varies in relation to:
– macro-economics: legal, regulatory, world markets, (parallel imports)
– distribution channels
– Marketing objectives, product life cycle & demand
Various ways of Pricing the Product:
- Cost-plus pricing
- Customer driven pricing
- Competition driven pricing
- Promotional pricing
- Generic pricing strategies
- Life Cycle Pricing
- Segmented Pricing
- Product mix pricing
- Psychological Pricing
Pricing Objectives will vary:
- Survival
- Maximise current profits, Cash flow, ROI, etc
- Maximise market share
- Maximum market skimming
- Product Quality Leadership
- Not for Profit
Determining Demand
Good old price elasticity of demand!
- Price sensitivity
– Definitely increased by internet
- Less price sensitivity
– Low cost items
– Items bought infrequently
– Fewer substitutes or competitors
– When they don’t notice higher price
– Slow to change behaviour
– Higher Prices are thought to be justified
– Price is small part of cost of obtaining/operating/servicing product over lifetime
6 steps to setting prices:
- Select pricing objective
- Determine Demand
- Estimate Costs
- Analyse competitors costs/prices/offers
- Select pricing method
- Select the final price
Review of related research in the pricing strategy of e-marketing (Yan, 2009) Dolan and Moon (2000)
– Studied pricing & market making on internet & found it is optimal for firms to use a different pricing mechanism on different channels
- Baker et al. (2001); Kung et al. (2002)
– Showed that the e-markets do not drive prices down and may help firms to design better pricing strategies
- Ancarani and Shankar (2004)
– Study revealed that multi-channel retailers have highest prices & pure play e-marketers may have the lowest prices in the e-marketing if shipping costs are included
- Kurata and Bonifield (2007)
– Used an analytical model to determine the optimal pricing strategy of e-business in the hotel and airline industries and showed that e-business can improve its profit by taking into account customer segmentation
Pricing & Returns (Yan, 2009)
- The author demonstrates that an optimal returns policy and pricing strategy exists when firms sell products through an e-market.
- When a firm uses an e-market to sell its product, its optimal returns policy and pricing strategy is to offer a more generous returns policy and to charge a higher price when the product web-fit is strong.
- Furthermore, the results also show that while the returns policy always is valuable for the e-marketer, the value of returns policy increases with the product web-fit.