Price

Price variable

The element of the marketing mix that Involves defining product prices and pricing models.

Pricing models

Describe the form of payment such as outright purchase, auction, rental, volume purchases and credit terms.

The price variable of the marketing mix refers to an organisation's pricing policies which are used to define pricing models and, of course, to set prices for products and services. The Internet has dramatic implications for pricing in many sectors and there is a lot of literature in this area. Baker et al. (2000) noted two approaches that have been commonly adopted for pricing on the Internet: start-up companies have tended to use low prices to gain a customer base, while many existing companies have transferred their existing prices to the web. Other existing companies have used differential pricing with lower prices for some of their products online. This has been the approach followed by online electrical retailers such as Comet (www.comet.co.uk). The Pricing element mix will often relate to the Product element since online pricing depends on the range of products offered. Extending the product range may allow these products to be discounted online. Some organisations have launched new products online which have a lower Price element, for example banks have launched 'eSavings' products where higher interest rates are offered to online customers. Often these agreements are dependent on the customer servicing their account online, which helps reduce the cost-base of the bank. This then relates to the service elements of the mix since service has to be delivered online. Although much of the discussion in this chapter refers to reducing prices online, it should be remembered that offering very low prices implies reducing the level of customer service available. While this may be acceptable for managing a bank account it may not be acceptable for customers of a retailer who have poor support and a bad experience may stop them using the service again. Remember that Amazon, one of the most successful online companies, established its brand through being known for its range of products and quality of service rather than having the lowest prices.

The main implications of the Internet for the price aspect of the mix, which we will review in this section, are:

1 increased price transparency and its implications on differential pricing;

2 downward pressure on price (including commoditisation);

3 new pricing approaches (including dynamic pricing and auctions);

4 alternative pricing structure or policies.

Price transparency

Customer knowledge about pricing increases due to increased availability of pricing information.

Differential pricing

Identical products are priced differently for different types of customers, markets or buying situations.

Price elasticity of demand

Measure of consumer behaviour that indicates the change in demand for a product or service in response to changes in price.

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