ECON 208 Lecture Notes - Lecture 4: Flickr, Root Mean Square, In Rainbows

27 views2 pages
Eco Lecture
Customer-Based Pricing. There are many versions of customer-based pricing.
(1) B2B: Salesforce allows purchasing agents to dictate their prices.
• An aquarium cleaning product firm sold below their cost because they were scared of
losing the custom of a big-box retailer.
(2) B2C: Giving away a valuable product or add-on for free because the com-pany fears a
customer revolt.
• Flickr hosts 4 billion images (as of Oct 2009). However, the user base is so passionate
that managers are reluctant to charge more.
The problems with customer-based pricing are that:
(1) Customers do not reveal how much they value the product
• Radiohead launched a ‘pay what you want’ scheme for their album ‘In Rainbows’. 62
percent paid nothing. Average price of $2.26 an album.
(2) Customers need to be educated about the value of the product
• For example, it was hard for customers to understand what TiVo offered over a
traditional VHS recorder.
(3) When customers are used to being in control of a firm’s pricing, they revolt at price changes
• Turbotax starting charging users $9.95 for each additional return they filed. Users
revolted and gave them a 1.5 star rating on Amazon. The company retreated, reverted
to charging nothing and refunded the money.
• Resident Evil 5, a computer game, tried a different approach: ‘This is the part where I
get to say ‘BS’,’ the vice president of Strategic Planning & Business Development wrote
on the Capcom forums. ‘RE54 PRICING BEYOND THE 3 CS is well worth every penny of
$60. A huge game, with tons of replay value, loads of unlockables, new weapons, co-op,
mercenaries mode, etc. If any game warrants its price point, it’s RE5’
Instead of asking themselves what their customers would pay, firms should ask themselves what are the
prices at which they can convince their customers are supported by their product’s value. How can they
segment to reflect differences in customer valuation?
Competition-Based Pricing. Competition-based pricing describes the situation where a firm does not
have a pricing policy that relates to its product, but instead a pricing policy that reflects its competitors’
pricing decisions. Sometimes this simply takes the form of a firm copying their competitor’s pricing and
not conducting their own pricing research. Sometimes such pricing can take the form of a firm setting a
market share objective and discounting their price relative to their competitor until they attain it.
The problems with competition-based pricing are that:
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Document Summary

However, the user base is so passionate that managers are reluctant to charge more. The problems with customer-based pricing are that: (1) customers do not reveal how much they value the product: radiohead launched a pay what you want" scheme for their album in rainbows". Users revolted and gave them a 1. 5 star rating on amazon. Re54 pricing beyond the 3 cs is well worth every penny of. A huge game, with tons of replay value, loads of unlockables, new weapons, co-op, mercenaries mode, etc. If any game warrants its price point, it"s re5". Instead of asking themselves what their customers would pay, rms should ask themselves what are the prices at which they can convince their customers are supported by their product"s value. Competition-based pricing describes the situation where a rm does not have a pricing policy that relates to its product, but instead a pricing policy that re ects its competitors" pricing decisions.

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
Booster Classes
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
Booster Classes