Class Discussion Notes
MKT 390 - 401
September 19, 2001
Product and Pricing
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Creating customer value online
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What is value?
 The entire product experience
 Defined by the customer
 Involves customer expectations
 Applied at all price levels
Components of the value proposition – Online benefits
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Product attributes
 Include overall quality and specific features
 Higher and consistent quality mean higher prices
 Features are things like style, color, size etc.
 Benefits are features from the user’s perspective
 The Internet increases customer benefits
 Marketing mix customization
 User personalization
Product and Pricing
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Components of the value proposition - cont’d
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Branding
 Trusted brands translate to customer perceived
benefits which translate to higher prices
 Branding decisions
 Use existing brands on the Net
 Pros
Well known with strong brand equity
 Cons
New product or channel is risky
Repositioning of offline brand
Channel differentiation
Product and Pricing
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Branding decisions – cont’d
 Create new brands
 Suggest something about the product
 Differentiate product from competitors
 Capable of legal protection
 Internet brands should be short, memorable,
easy to spell and easily translatable
 Cobranding
 Maximize synergy and brand recognition
 Partnership should make sense
Product and Pricing
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Branding decisions – cont’d
 Internet domain names
 Use company name or trademark in web
address
 Names may not be available
Buy name from registered owner
Create a modified name
 Cybersquatting
 Pick the right name
 First level domain names
.com
.org
.net
.mil
.gov
.co.countryabbreviation
Product and Pricing
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Support services
Labeling
 Identify brand names
 Sponsorship
 Ingredients
 Instructions for use
 Safety information and certification
 Promotions
 Create product recognition and influence purchase
decisions
Product and Pricing
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Components of the value proposition – Online costs
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Non-monetary cost reductions based on Internet
technology
 The Net is convenient
 The Net is fast
 Self-service saves time
 One stop shopping saves time
 Integration saves time
 Automation saves energy
Product and Pricing
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Additional considerations for product development
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Market deconstruction
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Increasing velocity
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Short product life cycles
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Unusual business partnerships
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Knowledge management
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Complexity of products
Product and Pricing
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Product mix strategies
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Discontinuous innovations
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New product lines
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Additions/extensions of existing product lines
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Improvements or revisions of existing products
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Repositioned products
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Knock off low cost products
Product and Pricing
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New product trends – B2B market
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Value chain automation
 Improves efficiency in the entire process of producing
and delivering product/service to the customer
 Affiliate programs
 Drive traffic to the site
 Targeted advertising
 Personalized promotions
 Customized web site content
 Sales
 Catalog aggregators
 Product configuration
 Brokerages
Product and Pricing
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Value chain automation – cont’d
 Payment/Financing
 Customer Service
 Distribution
 Relationship Marketing
Outsourcing
 ASP – Application Service Provider
 Perform value chain functions for their clients offsite
 Pros
 Lower startup costs
 Minimal I/S staff
 Lower switching costs
 Cons
 Lack of control
Product and Pricing
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Information sharing
 EDI
 OBI – Open buying on the Internet
 Businesses must translate their data to a common
format for exchange
 XML – Extensible Markup Language
 The language can be extended to accommodate
new types of data
 Built into IE, Netscape, MS Office
Centralizing Information Access
 Corporate portals
 Sites designed for company employees
 Extranets
 Corporate portals accessible to value chain partners
 Groupware
 Lotus Domino and others
Product and Pricing
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New product trends – B2C market
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Multimedia
 Conferencing software
 Webcams
 Streaming audio
 CD-quality audio
 Streaming video
 Internet telephony VoIP
Product and Pricing
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Assistive technologies
 Voice-activated computers
 Large type screen displays
 Type-to-speech or braille
 Speech to text telephony
 Eye gaze-to-type
Media convergence
 Voice, video and data on corporate networks
 Wireless devices and the Web
 Cell phones
 PDAs
 Broadcast media and the Internet
Product and Pricing
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Efficient markets
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5 characteristics of an efficient market
 Lower prices
 High price elasticity
 Frequent price changes
 Smaller price changes
 Narrow price dispersion
Product and Pricing
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The Internet is an efficient market
 Lower prices
 Factors that put downward pressure on prices
 Shopping agents
 Reverse auctions
 Tax-free zones
 Venture capital
 Competition
 Lower costs
Order processing self-service
JIT inventory
Overhead
Customer service
Printing and mailing
Digital product distribution costs
Product and Pricing
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The Internet is an efficient market – cont’d
 High price elasticity
 Frequent price changes
 Competition
 Shopping agents
 Easy to change prices
 Volume discounts easier to offer
 Experimentation is easier
 Smaller price change increments
 Response of price sensitive consumers
 Shopping agents
 Offline price changes more difficult
Product and Pricing
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The Internet is not an efficient market
 Price dispersion is not narrow
 Why not?
 Online market is immature
 Goods are price in a variety of ways online
 Variety of delivery options and charges
 Time sensitive shoppers
 Branding
 Switching costs
 Second-generation shopping agents
 Metamediaries
Product and Pricing
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Factors putting upward pressure on Internet pricing
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Distribution
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Affiliate programs
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Site development and maintenance
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Marketing and advertising
Product and Pricing
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Pricing strategies
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Penetration pricing
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Market skimming pricing
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Price leadership
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Promotional pricing
 3 advantages of promotional pricing on the Internet
 Highly targeted
 High customer satisfaction with purchases
 Online customers are more loyal
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Segmented pricing
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Negotiation
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Dynamic pricing