Marketing Mix Fundamentals prepares you for arguably the most important stage of bring your product to market - how and where are you going to market it? It sets out a detailed introduction to the four P’s of Marketing (Product, Pricing, Place and Promotion), this course forces you to strategically analyze your product and/or service. The Product session is designed to provide you with the knowledge to understand and manage the strategic role of brands and products in generating business results, whilst the focus on Pricing will cover the main concepts and techniques to formulate prices. Compliment this with skills from the “P” session Place, where you consider channels and retail strategies with the overriding objective of defining a distribution strategy for your product or service. Finally, through the Promotional activities (Communication) session, explore the different communication channels available and understand the importance of the media plan, dealing specifically with social media and omni-channel strategy. IE Professors Maria Teresa Aranzabal and Fernando Cortiñas will guide you through this incredibly important stage of marketing strategy using expert interviews with industry professionals. After this course you will be ready to decide where and how you want to market your product.
The Emergence of Internet Pricing
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From the course by IE Business School
Marketing Mix Fundamentals
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From the lesson
Price and Pricing Policy
At the end of this module you will have taken away an overview of price and the various factors that affect it. You will also be able to use various approaches to strategically price products and services.
Meet the Instructors
Maria Teresa AranzabalProfessor
Marketing
Fernando CortiñasProfessor
Marketing
[MUSIC]
Hello, dear students.
Welcome back to the price module.
In previous parts of this module, we introduced the notion of dynamic pricing.
In the conventional offline world, prices have been traditionally established
by the interaction between the supply and the demand.
In physical places defined with the name of marketplaces, where buyers and
sellers would meet to bargain.
As a result of this negotiation process, some quantities of goods and
services would be traded at certain prices.
These negotiations will take place every day, in a dynamic way.
And, as a result of this process, prices could change quickly,
depending on the varying conditions of supply and demand, and
depending also on the situation and characteristics of individual buyers.
Following this rationale, we also said that the larger the market, the better.
Because the larger the number of transactions there is,
the more transparent and liquid the market is.
And therefore,
prices are more representative at the time of reflecting a fair market value.
We also discussed the notion that, given that things have different values for
different people, prices could also be different for each consumer.
Depending on his/her willingness to pay more or less for the same product.
Opening the door for what we call differential pricing.
Which means simply to charge every consumer a different price
depending on his or her characteristics.
As a consequence of this, we said that the best theoretic way to reflect
the different willingness to pay of each consumer, was by means of an auction.
But this mechanism was expensive to organize and to implement.
And because of that, auctions were only limited to rare,
big-ticket items that could justify the cost and efforts to organize the auction.
All that has been said is being radically modified by the eruption and
dissemination of the new information technologies.
What are the impacts of the Internet on price formation?
To begin with, Internet increases the liquidity of the market,
increasing not only the number of transactions, but
also why the need in transparency in terms of access to information.
Now, theoretically speaking, the market base is the work.
Transactions are conducted not in a physical space but
in a virtual environment.
The cyber-space.
Opening the door to hundreds of buyers and sellers around the globe.
Besides, this market theoretically never closes.
Bringing the possibility to buy and sell goods and
services around the clock 24/7, 365 days per year.
Finally, the acts of buyers and sellers can be then very fast
around the very low costs, lowering the Internet barriers to all participants.
Because of all these reasons, the Internet has allowed,
in many sectors, to reach conditions of almost perfect free market conditions.
When I studied economics at university a long time ago in a galaxy far,
far away, in the classic view of perfect free market,
had to meet certain conditions such as, one, total transparency of information.
Two, no enter/exit calls and barriers to participants, buyers and sellers.
Three, the product would be or had to be in differentiated commodities.
Which means all the products will have to be exactly the same in terms of
characteristics.
And many professors wwould tell me, this an idealized vision,
because such markets rarely exist, however, the Internet has allowed many markets
to became very close to almost perfect free competition markets.
Why is that?
Let's see some of the impacts the Internet is having on price definition.
First, we will see the impact on sellers.
One, lower cost on transactions.
For the seller, the Internet gives them the possibility
of offering their products at significantly lower costs in different levels.
A, reduction of communication and advertising costs.
The possibility to reduce advertising or
communication costs brings the possibility to cut prices and
still be profitable and at the same time give the chance to enlarge markets.
Your market now is the world.
I always use a romantic, good example of this, which is the case of Zagier and
Urruty, a publisher Ushuaia, the southernmost city in my native
country of Argentina, which is a small niche publishing company.
It is specialized in books on Patagonia.
Since theInternet appeared,
they have been able to provide their products in a competitive way
to all people all over the world who are interested in their publications.
B, lower distribution costs.
Internet also offer producers and manufacturers the ability to eliminate or
to reduce their distribution costs.
The big losers here could be distributors who could beat this intermediary effectively.
Allowing customers to buy better products and better prices and
simultaneously allowing suppliers to have better margins.
The basic example of this was the emergence of dell.com order online that allow
Dell to become a big player in the PC business in front of large giants like HP.
By offering tailor made personalized products to their customers
in shorter periods of time and
at a lower prices than those established players like Hewlett Packard.
Greater market transparency.
The access to information on real time on global basis
increases the transparency of the market.
These equally important for sellers and buyers, and for sellers,
it's important even if they don't make transactions online.
For instance, farmers producing grains in Australia, the Argentine Pampas
or in the US Midwest.
They may decide to sell or
not to sell their grains, depending on the evolution of the daily price of cereals
in the Chicago study exchange, who can be checked over the web.
Estonian fishermen fishing in the Baltic now, they know the prices being paid for
their fish were in advance to their arrival to the ports.
The information being sent to them by apps on their mobile devices.
Three, greater knowledge about customers.
At the same time, the Internet linked to segmentation tools and fast and
economic data bases, allow companies to segment their offers.
Personalizing offers for different customers based on the customer profile.
The Internet provides an excellent opportunity to apply differential pricing.
To charge different prices to different people based on their history, habits,
traits, tastes, etc.
But also to do it dynamically.
The price may change over time even for the same person.
A good example of this is when buying airline tickets over the net.
A consumer can use the Internet as to look for several offers for a certain air ticket.
If he or she gets the best but
does not buy the ticket on the spot, chances are that
if the consumer comes after sometime prices might have increased a little bit.
Because some platforms that can identify the individual consumers, learn and
after detecting that the same person is willing to buy a certain ticket,
the price automatically increases.
On the other side, companies can use accesses to large data bases
to reward loyal consumers at the time of the developing potential loyalty programs.
Four, ability to change prices dynamically.
According to changes in the bank, supplies and costs.
The Internet gives the sellers the possibility to modify their prices,
not only on an individual basis but
also to modify the total catalog prices if market conditions change.
If a major weather event affects certain crops or if conflicts or
wars affect the availability of certain raw materials, producers
may alter their price list in a very short period of time across the board.
For buyers, the Internet also has impacts on the time of the defining prices.
The biggest advantage is related to having real time access to information worldwide,
which helps to bring higher market transparency and
therefore higher ability to compare prices and look for the best possible deals.
Even in the case of guideline prices or fixed prices, there are a lot of tools
that give information on exchange rates such as on dell.com or
interest rates, mortgage rates, etc.
The Internet is also affecting their way which auctions are conducted
both of the B2C as well as in the B2B world.
In the B2C arena because of lower transaction costs, companies like eBay
have been able to offer auctions on a massive basis, opening new entire world.
Allowing consumers to put not-so-commodity, secondhand articles or
low ticket articles on auctions.
That was a privilege reserved not until long ago
only for expensive items like antiques or art masterpieces.
And a more silent, but
very important revolution has been taking place over the last two decades.
In the transaction of B2B goods and services with the emergence and
consolidation of online auction tools, that help allow to cut
purchase costs of certain items in a very significant way to large corporations.
And this is all for the moment.
I look forward to meeting you in our next part of the price module.
Thank you very much.
See you soon.
Bye bye. [MUSIC]
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