E-Marketing: Price - The Online Value

This chapter covers various pricing strategies used for online sales, the buyer's and seller's perspectives on online pricing, the efficiency of the internet market, and online payment systems.

Identify main fixed and dynamic pricing strategies for online selling.
Discuss the buyer's view of online pricing in relation to real costs and buyer control.
Highlight the seller's view of online pricing in relation to internal and external factors.
Outline arguments for and against the internet as an efficient market.
Describe various online payment systems and their benefits to online retailers.

Mobile apps utilize different pricing and revenue models.
- (Golmack, 2017)
Freemium:
- Offer a basic product for free with an option to upgrade to a paid version.
Lite Versions:
- Sold at low prices but with fewer features compared to the full-priced versions.
Subscription Models:
- Provide access to content based on a monthly fee; this can also remove ads (e.g., Spotify).
Ad-Supported Apps:
- Free to users, generating revenue through targeted ads.
Crowdfunding:
- Support the development of specific applications.
- Involves numerous people funding a project with smaller contributions.
- An alternative to seeking larger contributions from a few big investors.

Price:
- The amount of money charged for a product or service.
- The sum of all values (time, money, energy, and psychic cost) that buyers exchange for the benefits of having or using a good or service.
Historically, prices were negotiated.
- Fixed price policies (same price for everyone) are a modern concept.
The internet is reverting to dynamic pricing.
- Varying prices for individual customers.
The internet enables price transparency.
- Both buyers and sellers can view competitive prices online.

Buyers often benefit from cost savings due to:
- Convenience:
  - The internet is accessible 24/7.
- Speed:
  - The internet provides fast transactions.
- Self-service:
  - Saves time for buyers.
- One-stop shopping:
  - Consolidates the purchasing process, saving time.
- Integration:
  - Streamlines processes, saving time.
- Automation:
  - Saves energy for buyers.
The shift in power from seller to buyer influences pricing strategies.
Buyer power online is enhanced by the vast amount of information available on the web.

Sellers see price as the money received from buyers (unless bartering).
Seller costs for producing the good or service establish the pricing floor, below which there is no profit.
Above the pricing floor, marketers can set prices to attract buyers from competitors.
Profit is the difference between cost and price.
The seller's perspective involves both internal and external factors.

a-1. Pricing objectives:
- Marketers set overall pricing objectives, which can be:
  - Profit-oriented
  - Market-oriented
  - Competition-oriented
a-2. Marketing Mix Strategy
a-3. Information technology affects costs

Competition, market factors, price-demand relationship (elastic or inelastic), and customer behavior affect a firm's pricing strategies online and offline.
Market structure and market efficiency (equal access to information about products, prices, and distribution) affect online pricing strategy.

External market factors apply downward pressure on internet prices, contributing to efficiency.
Shopping Agents:
- Comparison shopping agents facilitate consumer searches for low prices by displaying results in a competitive format.
Flash Sales:
- Limited-time offers for site members to purchase products at deep discounts.
High Price Elasticity:
- Refers to the variability of purchase behavior with changes in price.
Reverse Auctions:
- Allow buyers to name their price, and sellers try to match it.
Tax-Free Zones:
- Online retailing across state lines often means buyers pay no sales taxes.
Venture Capital:
- Many internet companies are financed through venture capital or Angel investors.
- Many investors take a long-term view, willing to sustain short-term losses to establish brand equity and gain market share.
Competition:
- Online competition is fierce and highly visible.
Frequent Price Changes:
- The online market experiences more frequent price changes than offline markets.
Smaller Price Change Increments

Electronic Money (E-money):
- Also called digital cash or digital currency.
- A system that uses the internet and computers to exchange payments electronically.
Off-line E-money Payment Systems Include:
- Smart chips in cell phones.
- Mobile wallets.

Price setting is both an art and a science due to contradictions.
How marketers implement pricing strategy is as important as the price itself.
Marketers can apply traditional pricing strategies online.
Four key pricing strategies for online sellers:
- Fixed pricing
- Dynamic pricing
- Renting instead of buying
- Price placement on webpages

Fixed pricing (menu pricing) occurs when sellers set the price, and buyers either accept it or leave it.
Everyone pays the same price.
Three common fixed pricing strategies:
- Price leadership
- Promotional pricing
- Freemium pricing

Many online retailers use promotional pricing to:
- Encourage a first purchase (e.g., Skype).
- Encourage repeat business.
- Close a sale.
Most promotions have an expiration date.
- This helps create a sense of urgency.

Pricing levels are set based on:
- Order size and timing
- Demand and supply levels
- Other factors
Becoming more common as firms gather more behavioral information.
Segmented pricing is effective when:
- The market is segmentable.
- Pricing reflects the value perceptions of the segment.
- Segments exhibit different demand behavior.
- The costs of segmentation do not exceed revenue.
The firm must be careful not to upset customers.

Helps companies relate pricing to regional or country factors, including competitive pressures and local costs.
Pricing differs by geographic area.
May vary by country.
May reflect higher costs of transportation, tariffs, margins, etc.

Sellers recognize that not all customers provide equal value to the firm.
Pareto principle:
- $80\%$ of a firm's business comes from the top $20\%$ of customers.
A firm's five-star customers contribute disproportionately to revenues and profits.

Through negotiation, the price is set more than once in a back-and-forth discussion.
Online auctions like eBay utilize negotiated pricing.
In the C2C market, trust between buyers and sellers is important.
eBay uses a feedback system to assist buyers.
B2B auctions, such as uBid, are effective for unloading surplus inventory.