MSc in Digital Marketing Week 7

By Paul Morris

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.

Leave a Comment

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.