Summary Digital Marketing Strategy
Part 3 The digital marketing mix
Chapter 9 – Pricing in the digital environment; costs to the consumer
Why is it so important to pay attention to the P of pricing in the digital channel?
It is obvious that the price that someone is willing to pay for something depends on
several factors. Pricing policy is one of the four P’s of the marketing mix, both on and
offline. Anyone who believes that traditional pricing calculation methods can be
literally translated into the digital world is poorly informed. Although this section will
delve extensively into the new, more digitally oriented models, first a more general
statement; digital start-ups often start out offering low prices, hoping to quickly build
up a sufficiently large customer base. Organizations that expand their existing
physical activities with a digital component often choose to charge the same prices
both off and online. As a result there are three key principles underlying digital pricing
for both situations:
Segmentation should reflect real-world market trends
In the digital context, the price per unit sometimes has to change
The cart can be set before the horse instead of the horse before the cart
Another obvious, but no less impactful finding, is that determining a ‘good’ price has
become increasingly complex. Due to the sharp rise in price transparency, people
around the world can compare prices more easily than ever before. The p of price is
therefore no longer a ‘simple’ tactic, but a strategic tool that can influence customer
behaviour and create new market opportunities,
9.1 Internet and the increase in price transparency
The internet has created a worldwide store in which all items are provided with
clearly legible price tags that can be compared. Transparency, combined with
globalization of the market and digital segmentation capabilities has enabled
organizations to differentiate themselves based on price, by pricing identical products
differently depending on the type of customer, market conditions and/or location.
The logical idea that modern consumers compare primarily at product level rather
than at shop level does not appear to be correct. The price elasticity of demand in the
digital context is quite inelastic. There are two reasons for this:
1. Price is just one of the many variables that play a role in digital purchasing
decisions
2. Buyers are not always rational in choosing a product, service, brand or
provider
9.1.1 The influence of digitalization on pricing
Off the well-known marketing mix elements, price is the only one that directly affects
an organization’s earnings and profits. Determining the right price is therefore a
crucial task.
, Price is a monetary measurement unit that allows customers to judge the value of the
offering and also has a strong influence on choice of brand between competing
alternatives.
Based on this definition, the best-known traditional pricing methods for new products
or services are:
Price skimming strategy > start high, go lower if necessary
Price penetration strategy > start low, increase if possible and stabilize price
Other widely used pricing methods are:
Discounts
Price bundling
Odd-number pricing > €9.99 sounds better than €10
An organization’s customer base can be divided into four distinct groups. This format
helps organizations understand which customers are valuable and which customers
are price sensitive. The customer groups are described in more detail below.
C customers: this group is by far the largest, but contributed the least to the
turnover and profits of the organization. These customers are often bargain
hunters.
B customers: price is an important factor for their purchasing decisions; they
are price sensitive.
A customers: they deliver great value to the organization. These customers
buy many products and services of a specific organization and do not tend to
check out what the competition has on offer. Price considerations are less
important.
A+ customers: this group of customers is a small, but very valuable part of the
customer base. The price is basically irrelevant for them.
Organizations should try to increase customer lifetime value and decrease price
sensitivity. This has become even more difficult after digitalization. The reason for
this is that there are now several factors that make it more complicated for
organizations to ‘force’ customers to ascend the pyramid:
Digitalization facilitates customer search behaviour > customers lose value for
organizations due to the increased ease of switching
Accepting prices versus influencing prices > nowadays, people have more
control over the price.
Customers have increasing power over transactions > customers almost
always determine how and when they pay
One-to-one negotiation > digitalization facilitates automated negotiation.
Commoditization and efficient markets > more expensive or even premium
products have found their way into the commodity basket.
The following are useful counter attacks that organizations and their marketers can
apply to these recent developments:
Continuous price differentiation > products are less ‘standardized’ than in the
past. This also applies to prices, because technology makes it easy to focus
prices on specific customers or at certain moments.
Use digital customer data to optimize pricing and raise switching barriers >
organizations can use the vast amount of customer data to offer customized
prices or products that fit within the customer budget.
Part 3 The digital marketing mix
Chapter 9 – Pricing in the digital environment; costs to the consumer
Why is it so important to pay attention to the P of pricing in the digital channel?
It is obvious that the price that someone is willing to pay for something depends on
several factors. Pricing policy is one of the four P’s of the marketing mix, both on and
offline. Anyone who believes that traditional pricing calculation methods can be
literally translated into the digital world is poorly informed. Although this section will
delve extensively into the new, more digitally oriented models, first a more general
statement; digital start-ups often start out offering low prices, hoping to quickly build
up a sufficiently large customer base. Organizations that expand their existing
physical activities with a digital component often choose to charge the same prices
both off and online. As a result there are three key principles underlying digital pricing
for both situations:
Segmentation should reflect real-world market trends
In the digital context, the price per unit sometimes has to change
The cart can be set before the horse instead of the horse before the cart
Another obvious, but no less impactful finding, is that determining a ‘good’ price has
become increasingly complex. Due to the sharp rise in price transparency, people
around the world can compare prices more easily than ever before. The p of price is
therefore no longer a ‘simple’ tactic, but a strategic tool that can influence customer
behaviour and create new market opportunities,
9.1 Internet and the increase in price transparency
The internet has created a worldwide store in which all items are provided with
clearly legible price tags that can be compared. Transparency, combined with
globalization of the market and digital segmentation capabilities has enabled
organizations to differentiate themselves based on price, by pricing identical products
differently depending on the type of customer, market conditions and/or location.
The logical idea that modern consumers compare primarily at product level rather
than at shop level does not appear to be correct. The price elasticity of demand in the
digital context is quite inelastic. There are two reasons for this:
1. Price is just one of the many variables that play a role in digital purchasing
decisions
2. Buyers are not always rational in choosing a product, service, brand or
provider
9.1.1 The influence of digitalization on pricing
Off the well-known marketing mix elements, price is the only one that directly affects
an organization’s earnings and profits. Determining the right price is therefore a
crucial task.
, Price is a monetary measurement unit that allows customers to judge the value of the
offering and also has a strong influence on choice of brand between competing
alternatives.
Based on this definition, the best-known traditional pricing methods for new products
or services are:
Price skimming strategy > start high, go lower if necessary
Price penetration strategy > start low, increase if possible and stabilize price
Other widely used pricing methods are:
Discounts
Price bundling
Odd-number pricing > €9.99 sounds better than €10
An organization’s customer base can be divided into four distinct groups. This format
helps organizations understand which customers are valuable and which customers
are price sensitive. The customer groups are described in more detail below.
C customers: this group is by far the largest, but contributed the least to the
turnover and profits of the organization. These customers are often bargain
hunters.
B customers: price is an important factor for their purchasing decisions; they
are price sensitive.
A customers: they deliver great value to the organization. These customers
buy many products and services of a specific organization and do not tend to
check out what the competition has on offer. Price considerations are less
important.
A+ customers: this group of customers is a small, but very valuable part of the
customer base. The price is basically irrelevant for them.
Organizations should try to increase customer lifetime value and decrease price
sensitivity. This has become even more difficult after digitalization. The reason for
this is that there are now several factors that make it more complicated for
organizations to ‘force’ customers to ascend the pyramid:
Digitalization facilitates customer search behaviour > customers lose value for
organizations due to the increased ease of switching
Accepting prices versus influencing prices > nowadays, people have more
control over the price.
Customers have increasing power over transactions > customers almost
always determine how and when they pay
One-to-one negotiation > digitalization facilitates automated negotiation.
Commoditization and efficient markets > more expensive or even premium
products have found their way into the commodity basket.
The following are useful counter attacks that organizations and their marketers can
apply to these recent developments:
Continuous price differentiation > products are less ‘standardized’ than in the
past. This also applies to prices, because technology makes it easy to focus
prices on specific customers or at certain moments.
Use digital customer data to optimize pricing and raise switching barriers >
organizations can use the vast amount of customer data to offer customized
prices or products that fit within the customer budget.
