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Internet Marketing, 2nd Ed
Mohammed, Fisher, Jaworski, Paddison
Chapter 8 Lecture Slides
Pricing
Exhibits and Tables
Copyright © 2003 by Marketspace LLC
Pricing — Today’s Objectives
To choose a product price which is aligned with the product’s differentiated benefits
and targeted customer segments
Chapter 8
Pricing
Chapter 7
Product
Chapter 9
Communication
Chapter 10
Chapter 6
Community
Customer
Relationships
Chapter 12
Chapter 11
Branding
Distribution
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–1: The Effects of the 2Is on Pricing
Individualization
Interactivity
Allows
Easy
to convey prices to
individuals
Allows more targeted price
promotions
Different websites cater to
different segments
Dynamic pricing sites can
keep individuals informed
Pricing
a larger buying and
selling community
Facilitates dynamic pricing
strategies
Allows prices to be changed
easily
Allows consumers to easily
check prices
Easier to understand and
measure consumers’ reactions
to price promotions
Easier to receive customer
feedback on price, understand
customers’ willingness to pay,
and implement pricediscrimination strategies
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–2: Key Pricing Strategies
Retail Price
Decisions
Cyclical
Promotional
Pricing (Hi-Lo)
Everyday Low
Pricing
Retail/Outlet
Pricing
Basic Pricing
Strategies
Cost
Plus
Brand Pricing
Promotions
Dynamic Pricing
Strategies
English
Auctions
Reverse-Price
English Auctions
Dutch Auctions
First-Price
Sealed-Bid
Auctions
Reverse FirstPrice Sealed-Bid
Auctions
Exchanges
Advanced Pricing
Strategies
Volume
Discount
Pricing
Two-Part Pricing
Bundling
Price
Discrimination
Over Time
Frenzy Pricing
Three Categories
of Price
Discrimination
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–3: Music Download Demand
Typical Teenager’s Semiannual Demand for Pop-Music Downloads
$12
Optimal Price
(Q=4, P=8)
$8
$6
Price
$4.50
Marginal Cost
4
6
Total
Revenue
Marginal
Revenue
Price
Quantity
12
0
0
11
1
11
11
10
2
20
9
9
3
27
7
8
4
32
5
7
5
35
6
6
36
5
7
35
4
8
32
3
9
27
2
10
20
1
11
11
0
12
0
3
1
-1
-3
-5
-7
-9
-11
12
Quantity
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–A: Demand Curve Inputs
A demand curve comprised of multiple inputs plots consumers’ aggregated
willingness to buy at each possible price point
Input
Impact upon Demand Curve
Price
As a product’s price is decreased, more units of the good will be
demanded by the market
Substitute Offerings
The availability of close product substitutes negatively impacts the price
which can be charged
Complementary
Offerings
The price of complementary products has the same effect on the
product’s demand as its own price
Income
Product demand tends to be positively correlated with consumer income
levels
Market Size
Growth in market size positively impacts demand
Taste
Consumer preferences are a positive driver of demand
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–4: Key Variables That Affect Demand Curve Slope and Position
Price
Price
Substitute
Offerings / Prices
Price
Substitute
Offerings / Prices
Complementary
Offerings / Prices
Complementary
Offerings / Prices
Income
Income
Market Size
Market Size
Taste
Taste
Quantity
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–5: Extremes of Demand Curve Slopes and Degrees of Flexibility
The slope of the demand curve determines the firm’s flexibility in setting a price
No Pricing Flexibility
Price
Complete Pricing Flexibility
Price
Quantity
(a)
Quantity
(b)
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–B: Industry Demand Curves
Certain industries are more inclined toward one extreme type of demand curve
than the other
Luxury Goods

Goods that buyers will purchase
regardless of price because
there are no acceptable
substitutes such as MercedesBenz or vacation homes
Commodities

Goods that are homogenous
and have available
substitutes such as wheat or
crude oil
Complete Pricing Flexibility
Price
No Pricing Flexibility
Price
Quantity
Quantity
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–C: Using Demand Curves to Set Price
The optimal pricing strategy is to choose the point on the demand curve where
marginal cost is equal to marginal revenue
Marginal Cost

The cost associated with
producing one additional unit of
a certain good
Marginal Revenue

The positive or negative
amount that is created when
a product’s price is changed
by one increment
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–6: Hi-Lo vs. EDLP vs. Retail/Outlet
There are three key brand positioning strategies that retailers can employ regarding price:
cyclical promotional pricing (Hi-Lo), everyday low pricing (*EDLP), and retail/outlet pricing
Hi-Lo
Product
prices high
most of the time
Occasionally,
prices
are set low (generally
lower than prices at
EDLP retailers)
EDLP
Retail/Outlet
Everyday
Regular
Occasionally,
Merchandise
prices are
set low (generally lower
than the high price in
Hi-Lo strategy)
EDLP
prices are discounted
(generally not lower
than the low price in
EDLP strategy)
prices at retail
stores (prices rarely
discounted at retail
stores)
discounted at outlet
stores
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
It’s Often the Case … Pricing in the Real World
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–D: Basic Pricing Strategies
Managers have traditionally used a variety of basic approaches to setting
product prices
Approach
Methodology
Cost Plus
Add a fixed mark-up to the total cost of the product
Target Profit Growth
Set a fixed profit target and increase price to reach it through better
margins or decrease price and reach it though higher volume
Target Return Pricing
Set a fixed return on capital and achieve it through a price change
Brand Pricing
Invest in building a brand in order to command a higher than average
price
Promotional Pricing
Discount prices on a regular basis
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–E: Promotional Low Cost Pricing
Stores and manufacturers often significantly decrease prices for the following
reasons:

Lowering the introductory price can
induce consumers to experience the
benefits of a new product

To capitalize on first-mover
advantage, firms set a low price and
usurp the competition

Firms in categories where switching
costs are high try use low price to
induce buyers to try their product

Offering low prices on well-known
brands, staple goods or seasonal
items can lead to sales of higher
margin goods
Last Updated: 06/24/03
Trial
Benefits of Rapid Acceptance
Switching Costs
Loss Leaders
Copyright  2003 by Marketspace LLC
Exhibit 8–7: Promotional Low-Cost Pricing
Well-Known
Brands
Trial
Loss Leader
Staples
Seasonal/Holiday/
Special-Demand
Items
Promotional
Pricing
Benefits
of Rapid
Acceptance
Switching Costs
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–8: Fairness in Pricing
Whether a selected price reconciles with a consumer’s internally generated
reference price determines whether or not it is considered “fair”
Key Components of
Reference Price
Past
prices
Close
substitute prices
Context
or purchase
environment
Environments in Which
to Consider
Underpricing (Fairness)
The
market clearing
price is much higher
than some wellestablished reference
price
Ongoing
pecuniary
relationship between
buyer and seller
When Fairness is
Important
When
there is an
ongoing relationship
between buyers and
sellers
When
the seller has
significant market
power over buyers
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–9: Effects of the Internet on Dynamic Pricing
The Internet has made it feasible for companies to frequently and proactively
adjust their pricing
Effects of the Internet on Dynamic Pricing
Decreased Menu Costs
(prices can be easily changed)
Interactivity
(easy for buyers and
sellers to interact and
negotiate prices)
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–10: Dynamic Pricing
Auctions

English

Reverse-Price English

Dutch

First-Price Sealed-Bid (Priceline Version)
Dynamic
Pricing
Exchanges
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–F: English Auctions
In an English Auction, buyers successively raise their bids until only one buyer
remains and all bids are visible
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–G: Reserve-Price English Auctions
In a Reserve-Price English Auction, firms submit a request for proposal or quotation
(RFP or RFQ) and the winning bid is the supplier who can provide the goods at the
lowest cost
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–H: Dutch Auctions
In a Dutch Auction, the seller selects an initial starting price and decreases it until
a buyer accepts it
Dutch Auction Drawbacks

The price is not influenced
upward by the interest of the
buyers

The price must start higher than
the market clearing price in
order to claim the available
profit
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–H: New Economy Dutch Auctions (continued)
In a New Economy Dutch Auction, the seller specifies the minimum priced for
multiple items and buyers bid up from that price; The highest bidders purchase
the item at the price bid by the lowest winning bidder
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–11: Priceline Auction Process
Priceline has created a new economy variant of the first price sealed-bid auction
which allows individual buyers to compete against an unknown reserve price
Consumer submits
nonrefundable bid
Priceline checks if
any of its
participating airlines
are willing to offer
roundtrip flight at bid
price or lower
Checks airline’s seat
availability
Priceline accepts or
rejects bid
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–I: Exchanges
Exchanges are forums where buyers and sellers can meet to exchange goods
with a percentage of the transaction going to the host
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–12: Price Discrimination
Price discrimination is the practice of charging different prices to buyers based on
their willingness to pay
First Degree — Charge
consumers exactly what they are
willing to pay for product (e.g., 1–1
price haggling)
Price
Discrimination
Second Degree — Charge
consumers exactly what they are
willing to pay for first unit of good
as well as additional units (e.g.,
volume pricing)
Third Degree — Divide customers
into distinct segments, charging
different prices to different
segments (e.g., movie-theater
pricing)
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–J: Volume Discount vs. Two Part-Pricing
Two types of strategies are used to charge consumers what they are willing to
pay for each additional item purchased
Volume Discount Pricing
Two-Part Pricing

Decreases the purchase price of an
item as the quantity purchased
increases

Charges a one-time fixed fee and an
associated variable charge for each
purchased item
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–13: Volume Discounts and Two-Part Pricing
Simple Volume-Discount
Pricing Plan

Consumer’s Demand for
Electronic Music
Value of . . .
First Single:
Second Single:
Third Single:
Fourth Single:
Fifth Single:
Sixth Single:
Seventh Single:


(consumer was willing to pay $20 for five songs)
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.50
– Revenue: $16
– Profit: $8.50
Two Part Pricing



Production cost of a single:
Buy first three singles at $4 per single
After three singles have been purchased, buy
two additional singles for $2 each
$4 is “left on the table”
$1.50

A flat subscription fee of $12.50 can be charged
In addition to the flat subscription fee, a fee of $1.50
per single can be charged
Given its demand schedule, the consumer is willing to
pay the subscription fee and purchase five singles at
$1.50 per single; recall that the consumer values the
five singles at $20
– Total Revenue: $20
– Total Profit: $12.50
Economically speaking, it is optimal to use a flat fee
subscription model only when the marginal cost of
producing the good is equal to zero
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–K: Implementing a Two-Part Pricing Plan
The effective implementation of a two-part pricing plan requires several critical
steps
1.
Understand each individual’s demand curve
2.
Determine the optimal number of products that should be sold to
each customer
3.
Calculate how much the consumer is willing to pay for each product
and set the fixed and variable prices to encourage them to purchase
the optimal number
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–L: Bundling
Bundling is the strategy of packaging several products together under one total
price
Pure Bundling
Mixed Bundling

Packaging together complementary
products which are only offered as
part of a bundle

Offering items as either component
pieces or as a bundle which discounts
each item
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–14: Yahoo’s E-Mail Bundle Pricing
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–15: E-Information’s Mixed Bundling Strategy
Financial
News
Legal
News
Current
News
Value Bundle
E-Information’s
Price
$3,000
$1,500
$1,250
$5,000
Company A’s
Valuation
$3,000
$1,500
$500
Company B’s
Valuation
$3,000
$750
$1,250
Company C’s
Valuation
$3,250
$1,000
$500
Strategy Net Result
Company A:
Company B:
Company C:
Purchases value bundle. Implicitly pays $1,500 for legal news, $500
for current news.
Purchases value bundle. Implicitly pays $750 for legal news, $1,250
for current news.
Purchases financial news. Pays more ($3,250 vs. $3,000) for
financial news relative to Company A and B.
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–16: Frenzy Pricing
Frenzy pricing, a strategy which results in significant excess demand due to low
prices, occurs for a variety of reasons
Demand
Uncertainty
Fairness
Frenzy
Pricing
Marketing
Efficient
Selling
Method
Signal
of
Quality
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8–M: Competitor Price Cuts
Price cutting, a tactic used to gain market share, is typically motivated by one of
three objectives
Financial Trouble

Typical motives for
price cutting:
Decreasing prices may be a desperate
attempt to raise cash, or signal to
competitors an interest in being acquired
Becoming an Industry Leader

Decreasing prices is sometimes a
show of strength to indicate that a firm
is doing well enough to withstand the
lower prices
Signaling Displeasure Over a
Competitor’s Strategy

A firm can use a price cut to punish a
competitor for a change in its strategy
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–17: Responding to Competitor Price Cuts
When faced with a competitive price cut, firms have three alternative responses
Responding to Competitor
Price Cuts
Enhance
Value Proposition
Justify Price
Differential
Battle
General Price
Cut
Cross
Parry
Targeted
Price Cut
Fighter
Brand
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Supporting Slide 8-N: Responding to Competitor Price Cuts (continued)
Enhance
Value Proposition

Enhancing the basic
product with additional
features such as
extended warranties,
additional services and
the inclusion of
ancillary products, but
maintaining the price
so that total customer
value increases
Justify Price
Differential
Battle
General Price Cut

Match the competitors
cut as an aggressive
show of strength

Communicating the
differential benefits
offered by the firm that
justify a higher price
than the competition
Cross-Parry Attack

Focused efforts toward
competitor’s primary
geography or product
Targeted Response

Discounts offered only
to vulnerable customers
Fighter Brand

New products
developed to appeal to
vulnerable customers
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–18: The Seven Deadly Sins of Pricing
– Leaving money on the table. Don’t discount unless you
have to.
– Having a one-size-fits-all mentality. Offer options!
Some people will want basic functionality while others
will want super-functionality.
– Thinking that every segment is the same. It’s not true!
Some segments will value your product more than
others. Try to price accordingly.
– Implementing price experiments on the Internet.
Customers do not like companies to charge different
prices for the same product without proper
justification.
– Underestimating your competitors’ reactions. Many
companies have been burned by innocently changing
prices only to be met by a full-fledged price war by
outraged competitors.
– Discounting because everyone else is doing it. Brand
strength or adding extra features (e.g., free upgrades)
may temper the need to discount price.
– Misjudging the value of goodwill. Sure, goodwill is
important in maintaining relationships, but think about
whether you are giving up too much in terms of price.
Customers may remain loyal even if you don’t offer
them the 10 percent discount.
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–19: The Pricing Pentagon
The Pricing Pentagon is a framework designed to help managers price products
Develop Pricing
Segmentation
Determine
Retail
Strategy
Challenge
Pricing
Mindset
Set Pricing
Goals
Test Final
Market
Equilibrium
PRICING
PROCESS
Establish
Product
Value
Estimate
Competitor
Reaction
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–20: Strategic Segmentation: Expanding and Increasing the
Density of the Customer Target Sweet Spot
Expanding the Customer
Sweet Spot Through Versioning
Increasing Customer Density
Through Price Discrimination
Expanded Target
Market
Expanded
Target
Market
Original
Target Market
Expanded Target
Market
Expanded
Target
Market
Price
Discrimination
Increases
Density
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–21: Estimate Competitor Response
Avoid Setting a Price That Leads to a Price War
Select potential
prices


Pick at least three
potential prices
Must be prices that
the firm could
actually charge
Game out
competitors’
reactions



Do industry
research to brief
managers before
game
Construct a
scenario-planning
exercise
Use a multiperiod
game for best
results
Estimate revised
price

Use game results to
estimate both the
firm’s final price as
well as competitors’
price points
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–22: Estimate Competitor Reaction
One-Period Gaming
Test Each Potential Price
This process should be
conducted for each potential
price (high, medium, low).
This example focuses on
medium price.
Estimate How Each
Major Competitor Reacts
Estimate Final Set of
Competitor Prices
Using insight from senior
Management, determine
how each competitor will
react to the price
(aggressively react,
minimally react, or accept).
Using insight from senior
Management, hypothesize the
new price point for each
competitor (in reaction to
medium price).
Aggressively React
Medium Price
Minimally React
Final Output
(medium price, set of competitor
prices in reaction to medium price)
Accept
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–23: Test Final Market Equilibrium
Final Price and Volume Points Yield Estimated Demand Curve
Price-High
P
R
I
C
E
Price-Medium
Price-Low
Q
H
I
Q
M
E
D
Q
L
O
QUANTITY
Note: Quantity Derived from Estimated Market Shares
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–24: Pricing Strategy Framework
Hi-Lo Pricing
Everyday Low
Pricing
or
Retail/Outlet
Pricing
or
Select Pricing Strategy
No Pricing
Flexibility

Price at market
Corporate Mandate


Target return pricing
Target profit return
High Initial Demand




Fairness pricing
Bundling
Frenzy pricing
Price discrimination
over time
Correlated Demand



Bundling
Volume discount pricing
Two-part pricing
Dynamic Pricing







English auction
Reverse English
auction
Dutch auction (regular
and eBay type)
First-price sealed-bid
auction (regular and
Priceline type)
Reverse first-price
sealed-bid auction
Group buying
Electronic exchange
Price as
Marketing Strategy



Prestige
Sign of quality
Promotional
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–25: Pricing Levers and the Four Key Stages of Customer
Relationships
Four Key Stages of Customer Relationships
Exploration/
Expansion
Awareness












Click-through
promotions
Web-referral
promotions
Specially negotiated
promotions (e.g.,
hotels)
Bricks-and-clicks
promotions
Web price discounts
Bundle
Frenzy pricing
Prestige
Price as a sign of
quality
Hi-Lo
Dynamic pricing
EDLP




Targeted Promotions
Future price
promotions
Justify prices
Loyalty programs
Commitment










Dissolution
Tiered loyalty
programs
Wide variety of
pricing plans

Become affiliates
Profit-enhancing
programs
Volume-discount
promotions
Targeted promotions
Future price
promotions
Fairness


Discontinue pricing
promotions
Reconfigure loyalty
programs
Decrease profit
programs
Two-part pricing
EDLP
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–26: EBay Real Estate Insertion Fees
Real Estate Timeshare & Land
Listing Type/Duration
Insertion Fee
Auction Format
3-, 5-, 7-, or 10-day Listing
30-day Listing
Ad Format
30-day Listing
90-day Listing
$50
$75
$100
$200
Residential, Commercial, & Other
Listing Type/Duration
Insertion Fee
Auction Format
3-, 5-, 7-, or 10-day Listing
30-day Listing
Ad Format
30-day Listing
90-day Listing
$100
$150
All Other Real Estate Categories
Listing Type/Duration
Insertion Fee
Auction Format
3-, 5-, 7-, or 10-day Listing
30-day Listing
Ad Format
30-day Listing
90-day Listing
$100
$150
Source: http://pages.ebay.com/help/sellerguide/selling-fees.html
$150
$300
$150
$300
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–27: EBay Insertion Fee Scale for Regular, Reserve Price, and
Dutch Auction Listings
Minimum Bid, Opening
Value or Reserve Price
$0.01 - $9.99
$10.00 - $24.99
$25.00 - $49.99
$50.00 - 199.99
$200.00 and up
Insertion Fee
$0.30
$0.55
$1.10
$2.20
$3.30
Reserve price auctions carry an additional fee, fully refunded if the item sells:
Reserve Price
$0.01 - $24.99
$25.00 - $199.99
$200 and up
Source: http://pages.ebay.com/help/sellerguide/selling-fees.html
Reserve Price Auction
Fee
$0.50
$1.00
$2.00
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–28: EBay Listing Option Fees
Seller Feature
Homepage Featured
Featured Plus!
Highlight
Bold
Gallery
Gallery Featured
List in Two Categories
Ten-Day Auction Duration
Buy It Now
Description
Insertion Fee
Item appears in a special
$99.95
featured section and will most
likely be rotated for display on
the eBay homepage
Item appears in the featured$19.95
item section and in bidders'
search results
Item listing is highlighted with
$5.00
lavender-colored band
Item listing is displayed in bold
$2.00
Item listing includes a small
picture in the Gallery (eBay's
minituature picture showcase)
Item listed in the Gallery will
also be featured at the top of
the Gallery in a larger size
$0.25
$19.95
Item listing appears in two
Double the
categories, increasing visibility insertion and
optional feature
fees (excluding
home page
featured)
Item listed for the longest
$0.10
duration available
Item available for sale instantly
$0.05
to the first buyer meeting a
specified price
Source: http://pages.ebay.com/help/sellerguide/selling-fees.html
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–29: EBay Final Value Fee Schedule
Final Value
$0–$25
Final Value Fee
5.25% of the final value
$25–$1,000
5.25% of the initial $25 ($1.25) plus 2.75% of the
amount above $25
Over $1,000
5.25% of the initial $25 ($1.25) plus 2.75% of the
initial $25–$1,000 ($24.38) plus 1.5% of the
amount above $1,000
Source: http://pages.ebay.com/help/sellerguide/selling-fees.html
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Exhibit 8–30: EBay Payments Fee Schedule
Payment Type
Credit Card
Transaction of $15 or less
Transaction Fee Transaction over $15
Auto Deposit Fee (For transactions over $15)
Per Transaction Limit
Account Type
Merchant Account
Standard Account
35¢
35¢ + 1.75%
0.50%
$2,000
35¢
35¢ + 2.5%
0.50%
$500
35¢
35¢ + 0.75%
0.50%
$200
35¢
35¢ + 1.5%
0.50%
$200
Electronic Check
Transaction of $15 or less
Transaction Fee Transaction over $15
Auto Deposit Fee (For transactions over $15)
Per Transaction Limit
Source: http://pages.ebay.com/help/sellerguide/bp-fees.html
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Chapter 8:
Pricing

The Economics of Pricing

Retail Price Decisions

Basic and Dynamic Pricing Strategies

Advanced Pricing Strategies

Strategic Responses to Competitor Price Cuts

The Pricing Process

Pricing and the Four Key Stages of Customer Relationships

Case Study: EBay

Conclusion
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC
Pricing — Conclusion

Firms have a wide variety of potential pricing strategies and price points to
consider when deciding how to best implement profit-maximizing strategies.

Firms can use a framework called the Pricing Pentagon to determine prices:
1. Challenge pricing mindset
2. Develop pricing segmentation
3. Establish product value
4. Estimate competitor reaction
5. Test final market equilibrium

There are a variety of pricing levers for firms to employ in their pricing
strategies. Each stage of the customer relationship has a set of appropriate
pricing levers that should be used.
Last Updated: 06/24/03
Copyright  2003 by Marketspace LLC