Pricing strategy in the digital age

Advertisement video-on-demand (AVOD)

Free access to content with interspersion of ads

Subscription video on demand (SVOD)

Monthly subscription fee to access premium ad-free content

media platform pricing models

Subscription video on demand (SVOD) Transactional video-on-demand (TVOD) Advertisement video-on-demand (AVOD)

types of subscription pricing

flat rate/ fixed pricing usage based pricing/ pay as you go tiered pricing per user pricing

what type of price discrimination if the pink tax

gender based direct price discrimination

is bundling a price discrimination tool

no

Direct price discrimination:

-Charging different prices based on observable characteristics of customers -E.g., age, gender

•Indirect price discrimination

-Charging different prices to induce consumers' different behaviors, which reflect their different unobservable characteristics -E.g., Coupon, quantity discount

conditions necessary for bundling

-Heterogeneous customers -price discrimination is impossible -Demands must be negatively correlated

•Airbnb Smart Pricing

-Introduced in Nov. 2015 -Free for all hosts -Property-specific -Web-embedded feature that hosts can turn on or off -Based on machine learning algorithm -Let hosts set prices to automatically go up or down based on changes in demand for similar listings.

bundling

Bundling is packaging two or more products to gain a pricing advantage •Reasons to offering bundling that are not associated with value-based pricing: -Simplifying buyer decisions -Encouraging purchase by creating the feeling of a "deal" -Helping move less popular product items -Motivating consumers to try new products •Bundling as a tool for value-based pricing

Transactional video-on-demand (TVOD)

Viewers access content on a pay-per-view basis

freemium pricing challenges

What should be free? What is your target conversion rate? Are you prepared for the conversion life cycle?

benefits of subscription based pricing

benefits to the customer - smaller payments - no need to remember to reorder - predictable delivery of product or service -products can be adapted to their tastes benefits for the retailer - predictable revenue -simpler customer retention -easier inventory management -increased engagement and loyal fans

the freemium model and the life cycle of upgrades

early adopters are willing to pay for the premium offering-->late adopters are more price senesitvie and see less value in upgrading-_> new features are introduces drivign new conversions

price discrimination

the practice of charging different consumers (with different WTP) different prices for the same good types: direct and indirect

advantage and disadvantage to customer value based pricing

•Advantage -Direct link to the needs of the one constituency paying for the respective goods or services • •Disadvantage -Data on customer preferences (e.g., WTP) can be hard to find

usage based pricing/ pay as you go

•Advantages -Provides maximum flexibility to meet consumer needs -Protection from heavy users •Disadvantages - difficult to predict revenue

flat rate/ fixed pricing

•Advantages -Simple -Easy revenue prediction. •Disadvantages -May not meet all consumers' needs -No upgrading

per user pricing

•Advantages -Simple to implement -Easy to predict revenue •Disadvantages -Users may share accounts

tiered pricing

•Advantages -Target different user segment -Easy upselling -Allowing consumers to upgrade or downgrade and thus reduce attrition •Disadvantages -Complicate to design -May be difficult for consumers to understand

leap pad as an example of competition based pricing

•For the children's tablet LeapPad1 Explorer, Walmart appeared to be purposely undercutting Amazon -before Thanksgiving 2012, Amazon offered the tablet for $59.99 on the Monday, Walmart priced it at $59.97. -On the Sunday after Thanksgiving, Amazon raised the price to $69.99, and Walmart followed, going to $69.97.

logic of freemium pricing

•Free features -Attract new users without expending resources on costly ad campaigns or a traditional sales force. •Monthly subscription fees -Generate sustainable source of revenue •Key to success -Trivial marginal cost to serve an additional customer -Free users can be attracted to upgrade to subscription accounts

freemium pricing

•Freemium= free + premium • •Users get basic features at no cost, and can access richer functionality for a subscription fee, often with -Free 30-day trials -Monthly subscription fee -Incentives for referral -Advertisements • •Used by many digital products and services, particularly startups -E.g., LinkedIn, Dropbox, Hulu, Box

impediments to direct price discrimination

•It is not easy to observe customer's willingness to pay •Customers have incentive to conceal his willingness to pay •Different prices to different people create opportunities for arbitrage •Social media leads to greater price transparency

advantages of indirect price discrimination

•Major advantages -not necessary to observe consumer characteristics -arbitrage is prevented by the design of the pricing scheme -E.g., Coupon, quantity discount

how does inline retailing intensify price wards

•Online retailers can collect information about competitors -pay close attention to competitors' online prices and in-store specials -collect information on competitors' cost, availability of inventory, sales goals •Sophisticated online retailers set algorithms to change prices in response to competitors. -Software lets retailers establish rules on the pricing of certain products; examples: always price Furbys 5 percent below Walmart •Price goods at an average of Amazon's and Walmart's prices. -Pricing managers also manually adjust prices.

Personalized Pricing

•Personalized pricing: A seller decides a product's price for an individual -Use data such as user location, IP addresses, web visits, past purchases, click-through speeds and social media "likes." -Use consumers' volunteered data such as birth dates, education levels and occupations -AI technologies to analyze information on previous purchases and predict future purchases

what industry is personalized pricing prevalent in

•Prevalent in the travel industry -E.g., A flight ticket purchasing experiment shows that price using a browser cleared of cookies: 1,770 to $1,950, and price using a browser with a robust history of purchasing flights: $2,116.

how is pricing strategy different that the other four -ps

•Price is the only marketing mix element that generates revenues. All other elements entail costs. • •It is one element that can be changed without having major cost implications... but it's dangerous • •The price level you choose can mean success or failure

cost based pricing

•Pricing decisions are influenced primarily by accounting data, with the objective of getting a certain return on investment or a certain markup on costs. -E.g., cost-plus pricing, target return pricing, markup pricing or break-even pricing. •Advantage -Data need to set prices are usually easy to find. •Disadvantage -Aspects related to demand (willingness to pay, price elasticity) and competition (competitive price levels) are ignored.

Customer-Value Based Pricing

•Use data on the perceived customer value of the product -Customer needs, customer perceptions of value, price elasticity, customers' willingness to pay -Considered by scholars and practitioners as the most preferred pricing approach •The highest price you can charge to sell a product to a consumer is the consumer's highest willingness to pay (WTP) -Different consumers may have different willingness to pay for the same product

competition based pricing

•Uses data on competitive price levels or on anticipated or observed actions of actual or potential competitors as a primary source to determine appropriate price levels. •Advantage -Competitive situation is taken into account •Disadvantage -Aspects related to the demand function are again ignored. -A strong competitive focus in setting prices can exacerbate the risk of a price war.