Pricing Understanding and Capturing Customer Value.ppt

Pricing: Understanding and Capturing Customer Value What is a Price? Narrowly: price is the amount of money charged for a product or service. Broadly: price is the sum of all the values that the consumers exchange for the benefit of having or using the product or service. Pricing Mechanism Throughout most of history, prices were set by negotiation between buyers and sellers. At the end of 19th century, the development of large-scale retailing → fixed price policies, i.e. setting one price for all buyers. At the end of 20th century, the Internet → dynamic pricing, i.e. charging different prices depending on individual customers and situations. Case: Priceline Its customer base has grown to almost 17 million users, and as many as 9 million people visit the Priceline site monthly (64% are repeat customers). Working mechanism Attractive to the “time sensitivity” product such as travel-related products (e.g. plane tickets, hotel rooms, rental cars, cruises, and vacation packages). Dynamic Pricing on the Web Sellers can charge lower prices, reap higher margins, e.g. Dell’s “made-to-order”. monitor customer behavior and tailor offers to individuals, e.g. Amazon. charge prices on the fly according to changes in demand or costs, e.g. online catalog retailers. Dynamic Pricing on the Web Buyers can get instant price comparisons from thousands of vendors, e.g. Compare.Net, PriceS, and 手機王. find and negotiate lower prices. Both sellers and buyers can negotiate prices in online auctions and exchanges. E.g. FreeMarkets, 阿里巴巴. Setting Pricing Policy Selecting the pricing objectives Determining demand Estimating costs Analyzing competitors’ costs, prices, and offers Selecting a pricing method Selecting the final price Selecting the Pricing Objectives Survival Reasons: overcapacity, intense competition, or changing consumer wants. Prices cover variable costs and some fixed costs Maximum current profit Maximize current profit, cash flow or ROI Does a leveraged firm more care about