Presented by Group 2 ( Camilla Harris, Kelem Butts, Shakthi Shetty, Wenhui Xing )
Pricing is one of the least understood and most controversial aspects of marketing. Few managers feel comfortable with setting prices, even more so when it is an online pricing decision. This report gives different pricing solutions that are implemented on the Internet and also a good collection of websites.
Flat-fee pricing is a pricing scheme that involves charging customers one monthly or annual fee for a service for unlimited access. It is a common trend among Internet Service Providers (ISPs). The ISPs like this type of service because it is easy to manage, and customers like it because the cost is predictable.
http://www.teledotcom.com/0497/features/tdc0497internet.side2.html
We found this
article on the site http://www.teledotcom.com/.
The author talks about how and why many ISPs like to use flat-fee
pricing. She then goes further to
discuss that that is not enough to maintain customers.
ISPs must also use sophisticated billing software to gain further
information about customers, and also to keep track of them.
To do this requires a significant up front investment.
http://www.teledotcom.com/0497/features/tdc0497internet.html
Dawn Bushaus talks about how many ISPs followed the lead of other ISPs, like lemmings, to the flat-fee pricing scheme. While customers seem to like the idea, it is going to prove disastrous for many ISPs as they will not be able to handle the volume with existing hardware. As a result, many ISPs have abandoned the consumer segment and switched to the business customer, as they tend to switch services at a lower rate. Some predict that this will lead to a major shakeup in the business. At the writing of the article there were 3000-4000 ISPs, it is expected that there will be approximately 500 by 2001. Some ISPs, such as AOL, are not expecting to generate most of their revenues from service fees, they are doing it through advertising.
http://www.teledotcom.com/0497/features/tdc0497internet.side1.html
The author contends that flat-fee pricing will be the death of many ISPs. Many providers followed the “health club” concept. They believed that they could sign up a lot of people that would not use the service very often, like health clubs, and not suffer the consequences of a lot of people using the service at the same time. Unfortunately this did happen, and many ISPs start to lose money when the average usage per month is 11 to 22 hours. With this type of system, there is no incentive for people not to use the service. At the point when this article was written the average usage was between 16 and 18 hours per month.
Predatory pricing is the act of pricing products at a sufficiently low price point to deter competitors from entering a market. Generally it is expected that they will eventually raise the price points so as to gain monstrous profits. This concept is called “delayed gratification”.
http://www.usatoday.com/life/cyber/tech/cte136.htm
Judge Thomas Penfield Jackson asks witnesses for Microsoft as to whether they are participating in a tactic of “delayed gratification”. Government lawyers argue that Microsoft illegally bundles windows with computers at a low price, so as to keep competitors from that business.
http://www.newnetworks.com/baadslscrewisp.htm
This piece explores whether or not Bell Atlantic is using predatory pricing for its DSL (Digital Subscriber Line) business to eliminate ISP competition.
Maintains a database of deals and low price offerings for a wide range of computer systems and peripherals. (Principles of Internet Marketing; Ward Hanson)
Kelly Blue Book, provide pricing on cars, so that consumers may visit the site to determine the real price of cars, which gives them bargaining power when dealing with auto retailers.
Travelocity allows consumers to research pricing of airlines and other travel services on their own.
This site can be used to research prices of books, CDs and DVDs from on-line providers. Simply enter the name of the product you want and the site will find the best price.
The popularity of electronic commerce has resulted in rise of electronic haggling. The Internet makes pricing information available to everyone everywhere, and thus a dynamic marketplace has been established, allowing consumers to determine what they are willing to pay for goods. Dynamic pricing, which includes things such as group buying, auctions, reverse auctions and shopping agents, is becoming characteristic of Internet commerce. The trend is that ultimately, no product will have a fixed price. Every purchase will involve a negotiation, conducted via computers and possibly aided by software bots optimized for searching. Thus, if a company is in the business of selling products or services, it has to pay attention to dynamic pricing.
Some web-linked articles and websites describing dynamic pricing are cited below:
The article provides general information about dynamic pricing and several critical rules for a company to pursue dynamic pricing.
1. Consider every product, regardless of its current popularity, as a candidate for dynamic pricing.
2. Treat the construction of database as the most important technical task.
3. Look for a brand-new opportunity.
4. Understand that money is not the only currency.
5. Educate your buyer.
6. Prepare to reckon with bots.
7. Start now.
http://www.keenanvision.com/assets/dynamic-pricing-keenan/frame.htm
The site provides insight into electronic commerce with Internet market research and executive consulting services concerning pricing strategies. It also gives a brief presentation regarding online dynamic pricing.
http://www.talussolutions.com/products/ecommerce.html
E-commerce industry is introducing pricing management program (software) to help the company to use advanced forecasting and optimization techniques for accurately predicting customer response, and setting price based on customer information. Talus Solutions is a company with 20 years of experience in dynamic pricing and is offering Revenue Management Suite to help customers effectively use dynamic pricing strategy.
Following is a list of some sites that successfully implement dynamic pricing strategy in action:
By using Talus Solutions Dynamic Pricing software, Ticket.com offers rigorously determined pricing recommendations to event venues that will help fill more seats and increase revenue – without raising ticket prices. The company can track customer response and segment it by time, season, and other relevant factors and continually recalibrate the pricing structure that will yield the greatest revenue for each event – and help set optimum prices for the future.
For now, the site gives consumers the ability to eyeball a list of deals at different sites to see how willing they are to tradeoff convenience for price, or merchant reliability for delivery date. Imagine adding a bidding bot to the mix to understand the potential for intermediaries here.
This site makes money by assembling groups and delaying purchases. To consumers, it’s a straight time-for-money trade. For instance, buy movie ticket certificates in advance and get them at practically half price.
Yield Management is the matching of price and available capacity. Yield management techniques are most often employed in service industries where capacity is fixed and perishable. Some sites with information concerning yield management are listed below.
http://www.abovetheweather.com/home.asp
Provides general information about yield management, including guidelines to assist companies in determining whether or not they can benefit from the practice of yield management. Also provides a list of articles on yield management and a list of consultants specializing in yield management.
Provides general information about yield management including papers on yield management that can be read on-line.
http://ucsu.colorado.edu/~miyataki/mbac6080/yield.html
Discusses industries where yield management is used. Demonstrates how technology can be used to enhance profitability. Provides information on the relevance of yield management to MBA students. The site also contains links to other yield management sites.
http://curricula.mit.edu/urban_or/animated-eg/ym
This site provides an animated simulation program on airline yield management that allows visitors to test their understanding of yield management concepts and ideas by playing a game in which they must book seats for an imaginary airline flight.
http://www-mugc.cc.monash.edu.au/~kfarrell/iymrs
This site is the International Yield Management Research Site. It provides a bibliography on yield management, and lists sources including papers, models, and industry software/consulting links regarding yield management. The site also contains a PowerPoint presentation that provides an overview of yield management.
On-line auctions provide powerful examples of real time pricing. There are two standard types of auctions—English Auctions and Dutch Auctions. In English auctions, auctioneers call out bids until no one is willing to top the last bid. In Dutch auctions, the price of goods starts high and gradually declines. The first bidder gets the goods. Though consumer to consumer auction sites such as ebay.com are the best known, several business to business auctions have appeared on the Internet also. Some business to business auction sites are listed below.
This site provides information about Fairmarket, a company that deploys, manages, and maintains online auctions & e-commerce solutions for other businesses. The Fairmarket network links customers’ product listings into a shared database of goods and services. Fairmarket also provides software solutions, the most interesting being the company’s “Biz Partner” solution. This package enables a host company to allow business partners to sell on its marketplace via kiosks, which are co-branded market place pages.
This is an online auction and information site for building, lumber, and wood products. The interactive auction lists products from over 100 companies ranging in price from $12 to $35,000.
This site features high-end, pre-owned and refurbished computers from dealers including Big Blue Products and Capital Data Services.
This site enables buyers and sellers in the heavy-duty vehicle industry to trade raw materials for remanufactured products and is a good place for sellers to liquidate slow or non-moving inventory and for buyers to locate hard-to-find raw materials.
Bundling is the combination of products into larger packages. This increases the sales volume. It is also profitable to combine components with high setup costs.
A free ISP that gives access to the Internet at local call rate within the UK. Customers automatically gain free access to their valuable company information database that includes detailed broker forecasts, financial data on 2,300 UK-listed companies, director information, advisor/client relationships, and share prices. This information is otherwise available through subscription at £10 per month (plus vat).
It builds product awareness, enables customers to become dependent on the product, and helps to gain competitive advantage by amassing more customers thus adding strategic value.
NetZero is an Internet service that provides consumers with free and easy access to the Internet while offering advertisers a powerful online direct marketing tool with features that have distinct advantages over traditional forms of advertising. A core feature of NetZero is the ZeroPort, a small window displayed on users' computer screens while they are online. This enables advertisers to display messages the entire time the user is online. NetZero has developed a consumer base of 3 million in 15 months.
This ISP gives a 2-tier option of $9.95/month for 20 hours (with subsequent hours at $2.95) or $19.95/month flat-rate. The target customers are moderate-use subscribers who will get the best online value i.e., adults who go online for business and professional purposes, while abandoning kids and heavy duty surfers to AOL and other ISPs. They have accumulated 2 million subscribers. NetZero lacks CompuServe’s highly popular proprietary content.
When LAWTEL acquired the Spicers database, third party distributors were taking the bulk of the revenue while all the cost of service was being incurred by Spicers. So the database was pulled off traditional online hosts in favor of an Internet-only strategy as exclusive distributor. It is now the leading provider of online legal information specializing in access to unreported cases within 24 hours of judgement. Subscription rates for unlimited access depend on the size of the organization.
This drugstore chain, under a deal with Internet start-up drugstore.com Inc., allows customers to buy online at Internet prices and pick up their purchases the same day at a Rite Aid store. The medicines are offered online at prices 10% to 30% cheaper than those in their own stores. In fact, the biggest drugstore chains - Eckerd, CVS, Walgreen Co. - have begun offering cheap medicines online.