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Faizan
Pricing, one of the four major elements of marketing, is a strategic factor determined by the relationship of product features, production costs and the product's perceived value. The growing importance of the Internet to the marketing mix has added another layer to the task of product pricing. Identifying its effect on the optimum range that customers are willing to pay for a product is known as price elasticity.
The Internet and the Marketing Mix
The inclusion of online channels in the marketing mix adds two important aspects to pricing decisions. The Internet represents an alternate sales channel, with far broader potential reach than traditional retail, direct or catalog channels. It may become the primary channel or, for many companies, the only sales channel. But the Internet is also a communication medium, where product positioning can be promoted in banner advertising, integrated product messages and social media. Product messages can spread the word about a new product, introduce it to a new audience or change consumers' perceptions of a product's acceptability or scarcity, all of which affect pricing.
A Practical Impact on Pricing
It could be said that pricing is determined by what the market is willing to pay, though this depends also on product quality, availability, seasonality and even customers' product familiarity. From a practical standpoint, Internet marketing adds elasticity by introducing the element of instant comparison to pricing. A national company may sell the same product through different sales channels -- at retail, in a catalog or online -- but at different price points. Consumer access to online market information means that a company's retail outlets may be asked to meet its online pricing during promotional events, forcing greater pricing elasticity than intended for that sales channel and product.
The Internet Shifts Competition from Local to Global
Among the Internet's many effects on pricing is its ability to make competition, even on the other side of the globe, local. This adds greater pricing pressure and makes cost management critical to maintaining margins. Industries such as the travel industry have been transformed, as customers, nearly instantly, compare prices across multiple websites, multiple providers and multiple product selections. While the short-term effect tended to erase margins, oil shortages and economic turmoil that began in 2008 have resulted in a lock-step price creep, while hidden costs and taxes, which often don't appear in quoted prices, can add significantly more elasticity.
A Larger Online Customer Base
The Internet can deliver millions of potential customers from all over the world. This potential can contribute to extremes in pricing elasticity, since sales projections may be difficult, if not impossible, to predict. On the flip side, the Internet can make it easy to test pricing offers above and below a median price. Simply by creating different pricing promotions directed to distinct landing pages, you can experiment with which product positioning and price seems to yield the best results.
Legal Constraints That Impact Elasticity
The Internet can add legal constraints and costs not accounted for in local retail environments. Shipping costs are a major factor, as are duty and taxes in some countries and areas, potentially putting products from, or to, those countries at a price disadvantage. While the U.S. continues to allow tax-free Internet commerce, companies during major holiday shopping times find that absorbing shipping costs is one of the few ways to maintain a pricing advantage.
The Internet and the Marketing Mix
The inclusion of online channels in the marketing mix adds two important aspects to pricing decisions. The Internet represents an alternate sales channel, with far broader potential reach than traditional retail, direct or catalog channels. It may become the primary channel or, for many companies, the only sales channel. But the Internet is also a communication medium, where product positioning can be promoted in banner advertising, integrated product messages and social media. Product messages can spread the word about a new product, introduce it to a new audience or change consumers' perceptions of a product's acceptability or scarcity, all of which affect pricing.
A Practical Impact on Pricing
It could be said that pricing is determined by what the market is willing to pay, though this depends also on product quality, availability, seasonality and even customers' product familiarity. From a practical standpoint, Internet marketing adds elasticity by introducing the element of instant comparison to pricing. A national company may sell the same product through different sales channels -- at retail, in a catalog or online -- but at different price points. Consumer access to online market information means that a company's retail outlets may be asked to meet its online pricing during promotional events, forcing greater pricing elasticity than intended for that sales channel and product.
The Internet Shifts Competition from Local to Global
Among the Internet's many effects on pricing is its ability to make competition, even on the other side of the globe, local. This adds greater pricing pressure and makes cost management critical to maintaining margins. Industries such as the travel industry have been transformed, as customers, nearly instantly, compare prices across multiple websites, multiple providers and multiple product selections. While the short-term effect tended to erase margins, oil shortages and economic turmoil that began in 2008 have resulted in a lock-step price creep, while hidden costs and taxes, which often don't appear in quoted prices, can add significantly more elasticity.
A Larger Online Customer Base
The Internet can deliver millions of potential customers from all over the world. This potential can contribute to extremes in pricing elasticity, since sales projections may be difficult, if not impossible, to predict. On the flip side, the Internet can make it easy to test pricing offers above and below a median price. Simply by creating different pricing promotions directed to distinct landing pages, you can experiment with which product positioning and price seems to yield the best results.
Legal Constraints That Impact Elasticity
The Internet can add legal constraints and costs not accounted for in local retail environments. Shipping costs are a major factor, as are duty and taxes in some countries and areas, potentially putting products from, or to, those countries at a price disadvantage. While the U.S. continues to allow tax-free Internet commerce, companies during major holiday shopping times find that absorbing shipping costs is one of the few ways to maintain a pricing advantage.
Posted in: Products & Brands
