Geographic Segment Pricing of online marketing

• The seller recognizes that not all customers provide equal value to the firm.

• Pareto Principle states that 80% of a firm’s business usually comes from the 

top 20% of customers. 

• A+ customers: 

• A small group that contribute disproportionately to the firm’s revenues and 

profits. 

• The most loyal customers who may become brand advocates to their 

friends and acquaintances = The frequent flyers. 

• They are also brand-loyal frequent customers who provide significant value 

to the seller. 

 When A+ or A customers appear at the Web site, they will be recognized 

and receive special attention. 

 They may not be price sensitive = they perceive that the brand/firm offers 

greater benefits + has earned their loyalty. 

Internal Factors of online marketing

1. Profit-oriented objective (most common strategy) :
• Focuses on current profit maximization rather than long-term performance,
• First estimate what demand and costs will be at different prices,
• Then choose the price that will produce the maximum current profit, cash flow, ROI.

2. Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
 Low prices generally build market share.
 AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high
cost of R&D.
3. Negotiation and bidding.

3. Competition-based pricing objective:
• Price according to what competitors charge for similar products, paying less
attention to the company's own costs or to demand.
 When one airline drops prices, its competitors usually follow suit.
 The Internet gives firms quicker access to competitive price changes. 

Seller View in online marketing

• Price = the amount of money they receive from buyers.

• Pricing floor = seller costs for producing the good or service,
 Under, no profit is made,
 Above, marketers set a price to draw buyers from competing offers,
 Price - Cost = Profit

• Factors affecting pricing levels:
• Internal factors = the firm’s strengths and weaknesses from:
• Its SWOT analysis,
• Its overall pricing objectives,
• Its marketing mix strategy,
• The costs involved in producing and marketing the product.
• External factors = the market structure & the buyer’s perspective. 

Buyer Control in online marketing

• Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
Online buyers are becoming more sophisticated.

• Sellers are more willing to negotiate = giving power to
buyers in the exchange.

• Sellers realize that information technology can help them
better manage inventories & automate frequent price
changes.
Buyers often enjoy many online cost savings:

• The Net is convenient:
• It is open 24/7 = users can research, shop, consume entertainment
anytime.
• E-mail allows asynchronous communication among users at any location
and prevents “telephone tag” with sellers.

• The Net is fast:
• Users can order a product and receive it the following day.

• Self-service saves time:
• Customers can track shipments, pay bills, trade securities, check account
balances, and handle many other activities without waiting for sales reps.
• Users can request product information at Web sites and receive it
immediately. 

Segment Pricing

• B customers are price sensitive + use the product category more than
do C customers.

• C customers: large group + may be price shoppers or infrequent users
of the product category, not accounting for much of the seller’s revenue.

• The seller’s goal is to keep A customers brand loyal and to move all
groups up to a higher level of value.
 Pricing strategies can help.
 Giving high-value customers the first shot at discounts will reinforce their
loyalty.

• B and C customers: might enjoy e-mail blasts with fixed prices so they
can be informed of the firm’s price +The seller can use this technique
to build a database for moving customers up in value. 

Pricing Strategies of online marketing

Fixed Pricing
 Dynamic Pricing
 Bartering
 
 Price setting is full of contradictions:

• Short term: If the price is too low profits will suffer/ if it is too high sales decline.
• In the long run: an initial low price that builds market share can create economies of
scale to lower costs + increase profits.

• Information technology has complicated pricing:

• Sellers can easily change prices according to each buyer’s previous behavior.
• BUT it is a steep learning curve.
• Pricing objectives produce very different results = a low price will build market share
at the expense of maximizing profit.
• Buyer value perceptions vary between rational and emotional, and not everyone
reacts the same way.
• Firms using multichannel delivery systems must consider the varying costs of each
channel and buyers’ differing value perceptions about purchasing on the Internet
versus the brick and mortar store.
• Pricing is a tricky business, guided by data, experience, and experimentation.