•Why should a firm consider fairness when pricing its goods?

•How has the Internet enhanced opportunities for dynamic pricing strategies?

•Why would a firm want to implement a price-discrimination strategy?

•What is the difference between static and dynamic markets?  Why must a firm consider its pricing strategies within the context of a dynamic market?

The Economics of Pricing

Key variables  of basic demand-curve pricing:

•Price

•Substitute Offerings/ Prices

•Complementary Offerings/ Prices

•Income

•Market Size

•Taste

•Marginal Revenue

•Marginal Cost

Basic Pricing Strategies

•Cost Plus

•Target Profit Growth

•Target-Return Pricing

•Prestige Pricing

•Price as a Sign of Quality

•Cyclical Promotional Pricing (Hi-Lo)

•Everyday Low Pricing

•Fairness in Pricing

•Promotional Low-Cost Pricing

Dynamic Pricing Strategies

•Dynamic Pricing is one of the most significant contributions the Internet and the 2Is have made to pricing strategy.

•The Internet has enhanced dynamic pricing in two ways:

–Decreased Menu Costs

–Interactivity

Auction Types

•English Auctions

–Reverse-Price English Auction

•Dutch Auctions

•First Price Sealed-Bid Auctions

•Reverse First Price Sealed-Bid Auctions

•Group Buying

•Exchanges

Advanced Pricing Strategies

•Price Discrimination

–first-degree, second-degree and third-degree

•Volume Discount Pricing

•Two-Part Pricing

•Bundling

•Price Discrimination Over Time

•Frenzy Pricing

Strategic Responses to Competitor Price Cuts

®Enhance the Value Proposition

®Battle

®Cross-Parry Attack

®Targeted Response

®Fighter Brands

®Justify the Price Differential

Pricing Process

®Set pricing goal

®Differentiate value relative to substitute products

®Strategically select target customer segments

®Strategic pricing/ competitor reaction

®Select a pricing structure and price point

Pricing and Market Making on the Internet

(Dolan & Moon, HBS Case 9-500-065)

     •The Internet will create downward pressure on prices:

     •Potential buyers can speedily search the net

     •Low consumer search costs will lead to greater price competition.

The Internet will create downward pressure on prices:

     •The same technology that reduces customer search costs also:

  •Facilitates buyer acquisition of quality information

     •Enables suppliers to update price dynamically in response to observed demand

     •Allows sellers to create meaningful markets for potential buyers with price being the outcome of the auction process

     •Permits prospective buyers to specify in detail the product’s requirements and put fulfilment out to bid to an organized market of potential sellers.

 In an Internet era the challenge is not only setting the price for  knowledgeable consumers; but, also, how to select the most advantageous combination of market making mechanisms via which to transact exchange.

Type 1: The Set Price Mechanism

     •Take it or leave it price involves horizontal interactions between buyers and sellers.

     •Low transaction costs.

     •Sense of fairness.

     •In traditional retail markets, buyer ignorance is a source of profits, but in an Internet world search costs are low and search agents are increasing.

     •Internet examples, Amazon, etoys.com, Compare.net, R U Sure, NECX.

     •Internet has created set of companies that sell product below costs, e.g.,

               Buy.com (but ?)

Type 1: The Set Price Mechanism

(Con’t)

     •Others, like Amazon, do not offer the lowest price, but leverage other

       dynamics such as:

     •Branding and trust – most on-line transactions are not instantaneous and consumers have fear of being ripped-off

     •The shopping experience – superior product information and search tools.

     •Lock-in – activities that increase customer switching (customize customer interactions).

     •Dynamic pricing – low menu costs and increased customer information.

Type II: The Buyer/Seller Negotiated Price Mechanism

    •One-to-one vertical negotiations takes place around the world, from the fruit markets in Taipei, to car dealers in the NYC; however, they have some disadvantages:

     •It takes longer than fixed price exchanges to complete.

     •Price tends to dominate over features.

     •For negotiations to be effective, the customer contact person must have some degree of pricing authority.

 The Internet provides an efficient mechanism that mitigates each of these problems.

  •Start with a specific price: NexTag.com gives listing of products and allows the customer to counteroffer. Advantages of the process are that negotiations can be done with multiple sellers at once and the customer is always in    control.

     •Another alternative is Hagglezone for real time negotiations and    entertainment.

     •Buying-power based negotiations

 •Product aggregators, get volume discounts, sites like Accompany.

Its important because the internet has created competition and leaves expectations in the minds of the consumer, therefore we must reach these expectactions through interactivity and through individuals and their important relationships to the marketing department. 

2)  What is the role of the Internet in a marketing communications campaign?

The goal of marketing and communications is to convey relevant messages to the right consumers at the right time.  Synergy between messages is intergrated communications.  Traditional and interactive  marketing methods may be used at hte same time.

3)  What are the main categories of communication types, and within each catergoy, what are the tools, or marketing levers, that marketers use to communicate with consumers?

Marketing communications, which includes all the points of contact that a firm has with its customers, can be grouped into four categories:

1. Mass offline- Broadcast Media: television, radio, outdoor & public relations.  Print Media: newspapers, magazines, yellow pages, brochures, newsletters.  Point-of-Purchase Displays
2. Personal offline- Telemarketing, Direct Mail, Statement Stuffers, Customer Service
3. Mass online- Basic Online Tools: banners, interstitials, search engines, point-of-purchase displays, Applications of Basic Online Tools: partnerships and affiliate programs, sponsorships, chat rooms, serial marketing
4. Personal online- Personalized Commercial Websites, E-mail Marketing: viral marketing, loyalty programs, customer service

4)  What are the six steps in the communication process?

1. Identifying the Target Audience
2. Determining the Communication Objective
3. Developing the Media Plan
4. Creating the Message
5. Executing the Campaign
6. Evaluating the Effectiveness of the Campaign

 5)  How do the 2Is of the Internet affect marketing communications?

Interactivity- you can develop a closer relationship with consumers when you make them feel comfortable and can do anything online, like text messages alerts, and emails.  Individual- is the relationship with consumers. 

•         Can be defined as both tangible goods and intangible services generally created for the purpose of transaction.

•         Two general types of products for which the levers of product development differ – physical and services.

•         The Internet is changing some accepted limitations of service-based offerings such as intangibility, simultaneity, heterogeneity, and perish ability.

•         Three components to overall value proposition: core benefit, basic product and augmented product.

2)  How do interactivity and individualization affect product?

•         The 2Is allow a company to learn more about its customer, personalize a product to meet customer preferences, and offer CRM tools to provide more value for customers and cut costs for product sellers.

•         Websites which require customers to register to use the site have access to numerous tools to interact with the user as an individual.

3)     What are the key marketing levers for products?

Basic Product includes the packaging, attributes & features, Customer- Specified Attributes & Features, and Mass-Customized Product.

These are the key marketing levers for products:

•         Customer Service Programs

–        Postsales support, customer care, &  customer relationship management.

•         Loyalty Programs and Privileges

•         Availability of Complementary Products

•         Upgrades

•         Enabling Community

•         Additional Functionality

•         Fulfillment Capabilities

4)     What does the overall product development process look like?

1. Idea generation
2. Screening ideas
3. Product design
4. Prototype development
5. Business analysis
6. Test marketing
7. Commercialization

5)     How can companies manage their product portfolio?

A strong product development portfolio generally includes:

1. New product development
2. Enhancements and line extensions of current products and services
3. Development of existing products
4. Support of current products and services

6)     How can products help enable a customer relationship?

•         Two primary techniques:

1.     Deploying the product development levers that are appropriate for the existing relationship and

2.     Emphasizing the elements of the value proposition that are most relevant at a given stage of the relationship.

7)     How can a customer-centric approach to product development create strategic advantages?

New product development is impacted by:

1. Customer needs
2. Production needs and capabilities
3. Research and Development
4. Competitors and Marketplace Forces

A set of interwoven relationships built upon shared interests, which satisfies members’ needs otherwise unattainable individually.

2)     What are the criteria that define successful community?

•Membership is a conscious choice.

•Member base has achieved critical mass and sustainability.

•Members feel a great sense of trust.

•Members achieve benefits in scale.

•Roles are not hierarchical or imposed.

•Effective facilitation and site structure keeps community activities on track.

•A spirit of participation and feedback is clearly cultivated.

•A sense of affiliation is achieved through ownership of equity in the community.

•Efficiency in interaction is maximized.

•The community is easily navigable.

3)     What are the different types of interest that form the foundation of community?

There are three broad types of Communities, differing by their foundation of shared interests:  1) Information-driven communities, 2)  Activity-driven communities, 3) Commonality-driven communities

4)     What are the different ways in which communities’ function?

How do Communities Function?

•Real-time systems

–Internet Relay Chat (IRC)

–Web-based chat

–Virtual worlds and MUDs (Multiuser Dimensions)/ MOOs (MUDs Object Oriented)

•Asynchronous systems

–Mailing lists

–Newsgroups (Usenet groups)

–Web-based message boards (bulletin board systems [BBS])

5)     What are the three primary ways in which value is created within a community?

Three patterns emerge for creating and transferring value within communities: 1)  User to user 2) Administrator to User 3) User to administrator.

6)     What are the benefits that community can generate for a parent firm?

•         Cost Benefits

–        Reduced Customer Service Costs

–        Reduced Customer Acquisition Costs

–        Reduced Costs from Decreased Product Flaws and Marketing Mistakes

–        Reduced Marketing Costs

•         Revenue Benefits

–        Increased Customer Segmentation and Customization

–        Increased Branding

–        Deepened Customer Relationships

7)     What are the different levels of community?

Community Building on the Web in Amy Jo Kim’s book identifies 5 stages:  Visitors, Novices, Regulars, and Leaders.

In a separate book, Randall Farmer similarly delineates the different participation levels: Passives, Actives, Motivators, and Caretakers.

How to Create Successful Community

Guiding Principles: The Four-Stage Micro-Approach

–Awareness

–Exploration/ Expansion

–Commitment

–Dissolution

Guiding Principles: The Three-Level Macro-Approach

-Nascent

-Formative

-Mature

•         A distribution channel is the system of organizations involved in the process of making a product or service available for consumption or use.

•         Marketing channels therefore facilitate the exchange of goods and services between buyers and sellers

2)     What are the functions of channel intermediaries?

Objectives of Channel Intermediaries

Efficiency: Distribution costs are reduced only if the retailers can perform the required functions more efficiently than the manufacturers could in the direct channel.

Effectiveness: the ability of the channel to perform functions that create value for customers.

3)     What is disintermediation and what are its implications for channel intermediaries and customers?

Disintermediation

•A strategy that involves the elimination of a channel intermediary.

•Internet has become a driving force for disintermediation

•Overall result is positive because channel works more closely to create value for customers.

Elimination of channel intermediary

•         E.g. one hallmark of the new economy is a move from traditional manufacturer-retailer-consumer channels to direct online channels that eliminate the retailer.

Internet – driving force for disintermediation

•         The Internet enables firms to interact at a much lower cost and higher speed than ever before.

•         Frequency and complexity of communication between buyers and sellers, but tighter links between channel members which facilitates lower inventory and shipping costs.

4)     What are the distribution levers and how do they affect relationships between intermediaries and buyers and sellers?

Awareness

Number of Intermediaries

•         Intensive distribution strategy should lead to greater awareness because the firm is accessible via more outlets.

•         Nearly all distribution in the online world is intensive because of the Internet’s massive reach.

•         However, participation in affiliate programs is one tactic that increases distribution intensity.

Number of Channels/ Intermediary Type

•         Given that different customers are likely to shop at different channel types, a greater variety of distribution channels increase market coverage and therefore awareness.

Exploration/ Expansion

Degree of Channel Integration

•         As integration increases, the willingness to explore the potential for a relationship should increase.

•         Very simply, integration increases the level of customer service, which increases the attractiveness of the firm as the relationship partner.

•         Also important is the effect of channel integration on the reliability of customer service.

•         Relationship quality comes not only from the level of the customer service, but also from whether the customer can count on the service from interaction to interaction.

Number of Channels/ Intermediary Type

•         Likelihood of exploration increases as the number of channels increase.

•         •Firms increase exploration and expansion of the relationship by ensuring they target their customers correctly.By understanding the needs of each target segment, the product or service can be delivered through the most appropriate distribution channel.

•         As the perceived value of the product is enhanced, the willingness to explore increases.

Commitment

Degree of Channel Integration

•         The channel environment must be integrated for customers to commit.

•         Customers expect to be treated in a holistic sense, rather than on a per-transaction basis.

Intermediary Type

•         •Making a commitment to the firm requires trust and so the selection of the channel should be affected  by the degree of trust that is associated with the alternatives.Another issue is the ability to form buyer-seller relationship in an indirect channel.  Manufacturers that go direct have greater control over the brand’s marketing strategy and are more likely to generate commitment.

Number of Channels

•         •While a major advantage of employing multiple channels is the ability to appropriately serve multiple market segments, this strategy can also increase customer commitment within a segment.Customers often have different buying requirements based on the purchase situation, and their requirements can evolve over time as they grow older or their life situation changes.

Intermediary Functions and Responsibilities

•         •The firm can enhance customer value and strengthen commitment by using market research to understand customer perceptions of service quality.Other channel functions and responsibilities that can lead to greater commitment include customer representative training, sales incentives that focus on customer satisfaction and increased margins.

Dissolution

Elimination of Channel Types

•         Some customers, particularly those who find value in the functions carried out by the channel type that has been eliminated will complain or leave.

Reduction in the Number of Intermediaries

•         Customers will find it more difficult to purchase the firm’s products and will complain or exit.

Reduction in Channel Integration

•         By customers being treated based only on part of their transactions, they are less likely to feel connected to the firm or brand, and dissolution is likely to follow.

2.    Why is integrated lever selection important in a marketing plan?
o    The 2Is allow firms to choose levers that can move customers through the relationship phases faster and more effectively than ever possible.
o    The 2Is affect each category of levers differently, but the end results remain consistent across all levers.
o    Product, Pricing, Communications, Community and Distribution.

•    The potential of the 2Is demands that firms leverage the 2Is across the matrix design as much as possible in order to advance customers to the commitment stage.
•    Product – Individualization of user pages (Yahoo!) sustains commitment and increases switching costs.  Individualization also spurs users to move from awareness to exploration.
•    Pricing – Targeted price promotions, which can be both individualize and interactive in the form of a permission email, can advance users from exploration/ expansion to commitment by giving them a price incentive to make the purchase.
•    Communications – Interactive targeted banner ads are a classic example of the 2Is influence on communications levers.  Banner ads can be targeted at particular segments, and the interactivity of a banner ad allows a user to move from awareness to exploration just by clicking on it.
•    Community – In the case of eBay, the strong vibrant community sustains buyers’ commitment by ensuring a constant supply of a wide range of goods.  In turn, the large number of shoppers benefits sellers by driving up auction prices.
•    Distribution – Interactivity allows for tight linkages between suppliers and buyers, which can facilitate a collaborative relationship that results in benefits in logistics, inventory planning and responsiveness, especially just-in-time production.

The consumer adoption process is a generally accepted conceptualization of the stages a consumer goes through when confronted with a new product or service.  The consumer must become aware of the product, develop interest, perform a pre-purchase evaluation, and then try the product, either as a consequence of a purchase or of a marketer-sponsored promotion or incentive.

The diffusion process is a communications model and consists of four elements: the innovation, communication channels, time and the social system within which the innovation is spreading, concept shows a process that is normally distributed around a population mean. 

 The degree to which an innovative product or service possesses these characteristics determines the ease with which it is adopted and diffused throughout the population.  Older products such as the automobile and telephone were slower to diffuse through the population than newer ones like the Internet and cellular phones.  In this fast-paced environment, marketers must develop and successfully commercialize new products. However the consumer adoption process explains consumer behavior and how consumers adapt to a product, while the diffusion of innovations describes the life of a product over time.

Define “pervasive computing” in your own words.  What changes is it likely to bring about in the way marketers approach the Internet?

 The concept means that a single person can have access to all their computing devices to assist in performing all sorts of daily tasks.  It may accomplish an increasing number of personal and professional transactions using a new class of intelligent and portable devices.  It gives people access to the information needed.  Usually new technology are not usually simple to learn, that is why complexity can slow down the diffusion of an innovation. EXXONMOBIL’s speedpass example for gas station payments.  Wireless meters in las vegas.

Be prepared to describe the strategic drivers of wireless adoption and to give an example of each.

Context- when and where the customer needs and wants. 

            Localization- a consumer driving down the highway can be beamed info about attraction in the area.

            Personalization- specific stocks and price levels, notified on cellphone.

Time sensitive- coupons, can be saved or retained on the screen until the customer shows it at check out

High value-  coupons with high value

What the future holds in terms of knowledge management and the use of it for marketing application is still in working progress.  I mean the technology does exist, however barriers exists and there could be other mistakes that most people overlook.  Like for example I never really had an experience where I encountered with a human agent about exchanging of information worth telling, probably minor experiences but not good enough for an essay.  However there is the example about the learning how to get your first home but through some kind of process.

There has to be some kind of information structured so it can execute in the most efficient manner.  Information is the key that equips workers with knowledge to perform their tasks and on automated marketing programs of many kinds. As we all know, programs, no matter how much information is obtained, are followed in steps, after the first steps are taken then the following information can be revealed in the next process.  Like for example when a new couple wanted to buy a house, they had to check to see if they can be approved or pre-qualified for mortgage, that’s step one of buying a house.  They decide to start with their bank where they have their individual checking account, as they already have an established relationship with the bank, and will help smooth the whole mortgage process.  This bank spends the last couple of years trying to build an integrated system in an attempt to make the process as quick and efficient as possible.  The whole profile is set and customized according to their likings, and to their buying habits, a marketing plus.  The contents of the screen show that the bank has considerable information about the customer and is using it in ways that have a good chance of being productive.  Right after they send in their application, a personalized profile is constructed for them for information, and their value justifies a live customer service representative, they also have the button for live chat if needed.  All this is done automatically, using many applications, all relying on event-driven software.  In this case, the trigger is the mortgage application, which activates a series of decision rules.  Then an automated system that electronically routes documents to the next person in the process, following up with emails and questions.  The automated work flow also provides the customer with due dates for each task, and other things that need to be done before they can be approved.  However this may not be realistic to one of our experience on the internet, but this is how knowledge should be managed, and this aforementioned process could be used in marketing. 

v     You need detailed set of guidelines for using knowledge from several sources to provide the products, services, and support customers need

v     Processes have become the key unit of analysis for improving quality and for implementing automated systems.  It is not the individual step in the process that is most important; it is the smooth functioning of the entire process that is critical for success. 

v     Problems with missing data:  be patient, data can be obtained over time in the normal course of business.  Infer if needed.  The alternative is to exclude a consumer from any age-related promotion, if you’re not certain with age. 

v     TACIT KNOWLEDGE: knowledge that has not been articulated; often subconscious and relatively difficult to communicate to other people.  Askjeeves.com allows user to makes their queries in natural language.

v     EMAIL systems require both sophisticated technology and a great deal of customer-relevant knowledge to perform well. 

Server Log- record kept at the server level that records each file requested from a Website.  Created by the server that houses the Web site.  Each time a browser requests a file in order to build a Web Page, it generates an entry in the server request log.(marketing task is to determine how these data can be sued to fin-tune existing marketing strategies, from the example of sally looking for fishing rod for father, they collected information regarding how she was unsuccessful on the listings for one and two, but she found for 3). 

Coded web page- a technique in which a small image, usually a 1-pixel transparent image ( called a pixel tag or transparent GIF), is placed on a Web Page.  Used in conjunction with a cookie on the user’s computer, the image returns data about user activity on the Web page. 

The use of coded pages is a new method of collecting data, on the “browser (user’s ) side” of the information transaction instead of on the server side.  (detailed info about the visitors’ activity on the page.  Data is more accurate. Data collected by web bugs has smaller storage requirements because it stores only relevant data. Data are collected in this manner, it permits real-time processing and viewing of site metrics.

To collect detailed information about visitor activity, tags must be sued in conjunction with cookies.   Cookies themselves have become controversial, although the general Internet public seems less aware of coded pages in general.

Panel data- the process for using panel data to generate site effectiveness data is the same as using panels in the general marketing research process. The first step is to recruit a statistically representative panel of internet users who agree to participate in the data collection. Specialized software is downloaded onto the participant’s computer to record the click stream data. The software is polled at regular intervals to upload the data. First, the source of the data is unambiguous, which it often it not with server logs. Second, a person who uses the internet from both home and work is two separate people according to server logs, but carefully planned and maintained panel data can overcome this issue. Third, the measurement firm can collect demographic and behavioral data from panel households that can be useful in reporting and analytics.

They are all the same because they all record activity on internet one way or another.  They are different because server logs record information on the server side while Coded Data collects information from the browser side.  Coded Pages are more useful than server logs because the user’s IP address may change during the session, instead of server log recording the same visitor, it gets confused by recording different visitors.  With Coded pages, when data are collected in this manner, it permits real-time processing and viewing of site metrics. Server log data, on the other hand, must be transferred to a separate analytics system for batch processing. It can be made available quickly, but not in real time.  

·         hits: the number of files requested

·         impressions: the number of times and ad banner is requested by a browser

·         page views or deliveries: the number of times a web page is requested

·         sessions: the amount of activity on a site during a specified period

·         click-through: the number of times visitors come to the site by clicking on an ad

Measuring the Audience

Visitors:  the number of people who visit the site

            Total

            Unidentified (anonymous)

Behavior on the site

            number of page views

            session time

            path through the site

shopping cart abandonment

entry page (many visitors do not enter through the home page)

For Campaign Purposes

by communication channel: e-mail, mail, online banner, and so forth

by offer: promotion offered (free shipping versus 25% off)

search effectiveness by keyword

Targeting:  refers to directing marketing communications to individuals or businesses that have been identified as valid prospects for acquisition or retention.  Targeting in CRM identify a customers by developing customer profiles and using them either to identify customers who are appropriate to receive.  Customer profile:  a description, primarily quantitative, of an individual or segment using specified demographics, lifestyle and behavioral characteristics.  Fastest way for a firm to build its own house list is through registration on the Web site.  Techniques that prevent errors, like pull-down lists, are desirable.  Even so, the form may not be complete unless there is an incentive.  (Lucille Roberts) If the information comes on a schedule basis, not on demand, automate the process to immediately send a thank you email.  This is a classic direct marketing lead generation process.  Data collection is just a “fishing expedition”, as relationship strengthens, more information that is more detailed and more personal can be collected.   

Personalization:  involves the creation of specialized content for a prospect with a known profile by choosing from an array of existing content modules.  In addition to the emails,

 Both cases used PERSONALIZATION and CUSTOMIZATION techniques.    Personalized email and site content-  

THREE BASIC TYPES OF PERSONALIZED SITE CONTENT ARE IN USE: 

Rules-based personalization chooses content on the basis of known  weather.com provides geographically appropriate content to registered users).  “Purchase circle on amazon.com” registered address of the customers to say something. 

User-Controlled personalization allows the user to choose the content elements to be displayed.  Businesses are increasingly encouraging customers to create their own personalized entry page containing the information they access most frequently (My yellow option). 

Information-driven personalization uses complex profiles.