PRICE AND CHANNELSOUTLINEPRICE THEORYPrice StrategiesHOW TO AVOID PRICE WARIncentive SitesPowerPoint PresentationSlide 8MyPoints ModelSlide 10Slide 11Slide 12Slide 13Slide 14Slide 15BENEFIT PROPOSITIONWHY IT WORKSSlide 18CHANNEL FUNCTIONSCHANNEL CHARACTERISTICSANALYSISManufacturer DisintermediationSlide 23Slide 24Slide 25FORESTER JUNE 2000VIRTUAL STORESVstore & befreeSlide 29Where Will This LeadTAKE AWAYPRICE AND CHANNELSINTERNET MARKETINGSPRING 2001PROFESSOR GLEN L. URBANOUTLINE•Pricing Theory•Incentive Sites•Channel Functions -- functional mapping•Manufacturer Direct -- Manage Conflict•Personal Stores -- Major Impact?PRICE THEORY•Monopoly/Pure Competition–MC=MR–Oligopoly/Game theory•Rivalry -- Porter–treat of entry–treat of substitutes–power of buyers–power of suppliers•Price WarsPrice Strategies•Maximize Profit (Kozmo II)•Cost Plus•Penetration (Kozmo I)•Price Discrimination (eOffers/CRM)•Stability --HOW TO AVOID PRICE WAR-cooperate:explicit (illegal)tacitrules of the gamelearn behavioral normsmake reaction rules clearunderstand competitors-differentiate (e.g. Amazon trust/one click/ recommendations)-segment -- (vertical)-competitive advantage -- technology/timingIncentive Sites•Coupons -- eBates•MyPoints•Others -- NetcentivesMyPoints Model•Sign up for points -- 5 million members–read emails/ads/price off promotion–buy products/repeat•Privacy -- Trust•Targeted Emails -- direct marketing–permissive marketing -- Opt in–provide profiles–willing to read/interestBENEFIT PROPOSITION•“Building Life time Relationships for Less”•Consumer -- generous payment/Info and offers you want to see/privacy and control•Manufacturer -- lower acquisition costs and more sales•Advertisers -- targeted communicationWHY IT WORKS–Lower communication costs–Proven promotion response -- 20%–Manufacturer willing to pay more–Can split gains with consumer –More benefit than traditional coupons–email for all channel promotionsCHANNEL FUNCTIONS•Inventory (Iv)•Physical Distribution (Pd)•Information -- contact efficiency -- (I)–4 Manufacturers x 4 Retailers = 16 contacts–4 Manufacturers + 4 Retailers if one wholesaler = 8 contacts•Service (S)CHANNEL CHARACTERISTICS•Relationship Inertia •Power in Channel•Conflict•Multipaths -- complexANALYSIS•Map Channel•Identify Functions•Fill Gaps•Eliminate only if complete functions in other part of channel•Add alternatives if can manage conflict and generates value for customer (quality or cost)Manufacturer Disintermediation•Bill Gates is Right?•Sony/Panasonic–Price equals retail (by area)–Pay channel member for functions (display, kiosk, service)•Palm go Direct?BIG CHAINS (PD, I, IV, S)eCOM SITES(I,S)PALMDISTRIBUTOR (I, PD, IV)WHOLESALE (I, PD, IV)SMALL ELECTRONICS (I, IV, S)MACS MERCHANDISE (I, IV, S)CUSTOMERDisintermediation? SupplierSupplierSupplierCustomerCustomerCustomer“Valuechain.com”B2BcommerceintegrationPremierPagesPALM.COMBIG CHAINS (PD, I, IV, S)eCOM SITES(I,S)PALMDISTRIBUTOR (I, PD, IV)WHOLESALE (I, PD, IV)SMALL ELECTRONICS (I, IV, S)MACS MERCHANDISE (I, IV, S)CUSTOMERFORESTER JUNE 2000•By 2004, 50 million shoppers will visit manufacturers site to buy•62% of shoppers now visit manufacturer –45% browse–27% intend to buy–40% warranty•trust, correct information, up to date, low prices, post purchase info are reasons•68% of manufacturers who are not selling on line expect to be within 3 years•Manufacturers need to create consumer experienceVIRTUAL STORES•Vstore•BeFree - 3 million affiliates•Pyramid schemes•What is impact?Vstore & befreeWhere Will This Lead•Tupperware selling?–Individual does Information Function–More Trust?•Complexity•Conflict?•Impact?TAKE AWAY•Revolution in Pricing -- Rivalry•Differentiate or commodity prices•Net Incentives Powerful -- permissive marketing•Channel Functions and Maps•Manufacturer Direct Sites Will Grow•Personal Virtual Stores Have Limited