Pricing

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Pricing Branding on the Internet

• Juncai Liao
• Philipp Kohl
• Huang Bin
• Stephen Stults

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Pricing and Branding on the Internet
We are a group of business partners trying to
determine an adequate business model for our
online venture in China. During this process we
are discussing some models prevalent in the
United States around 5 years ago, during the
Internet boom
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Pricing and Branding on the Internet

• Brand Evolution Some argue brands will become a
  more important factor in the online world, some
  believe they will have less importance because of
  increased information availability
• Pricing Increased competition through the
  advantages of the internet are driving prices
  down. Yet studies suggest that product price is
  the attribute least correlated with a repeat
  online purchase.

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Amazon.com

• Brand Strategy Customer Obsession
• Personalization through extensive interaction
  with customers
• Expenditure on brand-building
• Aggressive growth strategy
• Price Strategy Low price, but not necessarily
  the lowest one

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Amazon.com

• Problems faced
• More customers served results in more costs and
  losses
• Competition from brick and mortar stores

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Barnes Noble, Inc.

• Barnes Noble has been rankedthe No. 1 retail
  brand for quality inAmerica for the last three
  consecutiveyears by Harris Interactive.

• Barnesandnoble.com is the No. 1 brand among
  e-commerce companies according to the latest
  EquiTrend survey by Harris Interactive.

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Barnesandnoble.com A Brief History

• In May 1997, Barnesandnoble.com was launched as
  the Internet arm of the bricks-and-mortar
  bookseller Barnes Noble
• Two years later, Barnesandnoble.com was spun
  off, with Barnes Noble and Bertelsmann each
  owning approximately 40 percent of the company
• The company went public in May 1999, raising
  421.6 million, the largest Internet IPO at the
  time

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Barnesandnoble.com Branding Positioning

• Barnesandnoble.com sells books, magazines, CDs,
  videos, software and opened an online music store
  in July of 1999
• Does not go beyond the bandwidth of its brand,
  focus on products that can be digitized

We are not going to sell pet food.
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Buy.com The Lowest Prices on Earth!

• Features a Low Price Guarantee (10 lower than
  Top 3 Competitors)
• Initial priority not to make money, but to build
  a brand and to accumulate a huge customer
  database
• Plans to be profitable through a variety of
  collateral revenue streams
• Advertising
• Installation Maintenance of higher-end
  products
• Shipping Fees
• Virtual Strategy No warehouses, Buy.com takes
  ownership yet not possession of the products it
  sells (unlike Amazon)

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Buy.com Possible Issues

• Reliance on Advertising Revenue
• Saturation and decline in response rates are
  pushing down the prices
• Clientele consists mainly of bottom feeders,
  less attractive to advertisers
• Buy.com might overestimate consumer price
  sensitivity
• Brand Loyalty Dependency on being the price
  leader
• Once prices go up, consumers will look for other
  sources
• Poor reputation for order processing, order
  fulfillment and customer service

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MobShop Pooling Consumers purchasing power

• MobShop methodology effectively transfers power
  from the supplier to the buyer
• MobShop encourages buyers and sellers to
  cooperate to extract the greatest value possible
  from volume sales
• Main sales pitch to suppliers is the ability to
  reach more customers without incurring additional
  incremental acquistion costs
• The underlying assumption is that consumers will
  be willing to wait before purchasing a product at
  a reduced price

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Priceline.com Name Your Price!

• Main Businesses Selling of Airline Tickets,
  Hotel bookings, and Loans
• 2004 Sales of 914 million, a 5.9 increase
• NI of 31.5 million, an increase of 164.7

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Priceline.com Pros and Cons

• Pros
• Good way to attract customers
• Can be applied to other industries
• Helps suppliers to sell unused capacity without
  disrupting price structure
• Cons
• Not the most user friendly experience
• Only targets small group of consumers

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MySimon.com Price Comparison Search

• Compares prices for almost anything sold over the
  internet
• Linked to 2,600 merchants
• Products in more than 250 product categories
• Can let others co-brand the service, expanding
  its reach
• Like the YellowPages, merchants pay for ads next
  to results

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MySimon.com Pros Cons

• Pros
• Large target market with 22 of online shoppers
  comparing prices before buying
• Can track wealth of consumer behavior
• Cons
• Sites may be reluctant to have their prices
  compared
• Price is not always most important factor of
  purchases

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Questions to the Audience
From your own experience, how important are
pricing and branding for you when shopping
online? Any specific examples? Which one of the
models presented do you consider most applicable
for the Chinese market?