Pricing Information

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Pricing Information

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Title: Pricing Information


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Pricing Information
by Manuel Mayrhofer
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The Cost of Producing Information
  • The most fundamental feature of information goods
  • Cost of production is dominated by the
  • first-copy-costs
  • Information is costly to produce but cheap to
    reproduce

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Examples
  • Book
  • once the first copy has been printed, the cost of
    another is only a few dollars
  • CD
  • cost of stamping out an additional CD is less
    than a dollar
  • Movie
  • Production costs can be enormous

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Fixed Costs and Variable Costs
  • The fixed costs of production are large, but the
    variable costs of reproduction are small
  • This cost structure leads to substantial
    economies of scale
  • the more you produce, the lower your average cost
    of production

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Special Structures
  • fixed costs of producing information
  • Mainly sunk costs (not recoverable)
  • have to be paid up front
  • additional marketing an promotion costs
  • variable costs of producing information
  • the cost of an additional copy typically does not
    increase (e.g. royalties)

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Microsoft
  • combination of low incremental costs
  • large scale of operation
  • 92 Percent gross profit margins enjoyed by
    Microsoft

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Pricing Information Goods for Digital Libraries
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Differentiation
  • Try everything to differetiate your procuct from
    those of other competitors
  • Example
  • Britannicas enyclopedia vs. Encarta (MS)
  • Business directories GIS
  • adding value e.g. by filtering and sorting your
    information for customers

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Cost Leadership
  • If it is hard to differentiate your product, you
    can at least try to sell a lot of it
  • Distribution skills, marketing expertise, and
    channel control are critical in this type of
    pricing game

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Pricing Information Goods for Digital Libraries
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Reduce average cost
  • Reduce average cost by
  • increasing volume through reuse and resale
  • Good thing
  • you can sell information over and over again
  • Example TV-Show
  • Baywatch is the most watched show in the world,
    110 countries, 1 billion viewers

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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First-Mover Advantages
  • The best way to secure a leadership position is
    through an early presence in the market, combined
    with
  • a foward-looking apprach to pricing
  • market share and access to raw information is not
    enough

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Dont be greedy
  • Willingness to sacrifice some short-term margin
    by dropping prices thus
  • making your market less attractive to would-be
    entrants
  • limit pricing not encourage others to
    invest the sunk costs necessary

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Pricing Information Goods for Digital Libraries
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Play tough
  • The key is to find a way to send a credible
    signal that entry will be met with aggressive
    pricing
  • This can start a price war
  • you should do it only when you think you can win

Manuel Mayrhofer
Pricing Information Goods for Digital Libraries
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Personalizing Your Product
  • Customize your product to generate the most value
    for your customers
  • Adds in search engines for related products
  • Capture as much of that value as possible by
    establishing suitable pricing arrangements
  • hot words for premium price (targeted)

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Pricing Information Goods for Digital Libraries
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Know your Customers
  • Ways to get user information
  • Registration and billing
  • you can ask for demographic information
  • Observation
  • get information about customer behaviour
  • search queries
  • clickstream

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Pricing Information Goods for Digital Libraries
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Collect Information
  • Consumers are often reluctant to provide
    information
  • 94 of Web users refuse to provide information
  • 40 give fake information
  • HTTP protocol ist connectionsless
  • hard to track clickstream

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Pricing Information Goods for Digital Libraries
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Pricing your Product
  • The Internet makes it easy to personalize your
    price
  • If the information products you sell are highly
    tuned to your customers interests you will have
    a lot of pricing flexibility
  • example research reports ( detailed and
    personalized information)

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Pricing Information Goods for Digital Libraries
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Price and Sales
  • Perfect price discrimination
  • Set the price at the consumers maximum
    willingness-to-pay
  • Charge each custumer what he or she is willing to
    pay

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Pricing Information Goods for Digital Libraries
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Differential Pricing
  • Personalized pricing
  • sell to each user at a different price (e.g
    airlines)
  • Versioning
  • offer a product line
  • Group pricing
  • for different groups of comsumers (e.g. student
    discounts)

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Pricing Information Goods for Digital Libraries
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Pricing on the Internet
  • Offering sales and other forms of promotional
    pricing is easy on the Internet since
  • prices can be changed instantaneously
  • Market response to price changes can be estimated
    and thereby the demand for your product ( cheap
    market reseach)
  • airlines offer unused seats on the Net

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Pricing Information Goods for Digital Libraries
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Reasons for Group pricing
  • Price sensitivity differs in different groups
  • localized versions of software and dubbed movies
  • Network effects, when other members of the group
    use the product (MS Office)
  • Lock-in, when you standardize on a particular
    product (switching costs)
  • Sharing Arrangements

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Pricing Information Goods for Digital Libraries
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Sharing Arrangements
  • Academic journals sell at a high price to
    libraries and a low price to individuals
  • Libraries are willing to pay a a higher price
    because they share among many users
  • By offering the product both for sale and for
    rental, the producer can segment the market
  • Example Video store, rental and purchase
    arrangements coexist

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Pricing Information Goods for Digital Libraries
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Lessons
  • How much to invest in producing and selling your
    information
  • Be aggressive but not greedy if you have to
    compete
  • Differentiate your product by personalizing
    information and price
  • Use the information you can gather about your
    customers
  • Analyse the profitability of selling to groups

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Pricing Information Goods for Digital Libraries
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Vocabulary
  • royalties Tantiemen, Abgaben an den Autor,
    Lizenzgebühren
  • incumbant Amtsinhaber
  • ZAG zip code, age, gender

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Pricing Information Goods for Digital Libraries
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