Feb 12, 2005

Pricing & Branding on the Internet

Juncai Liao

Philipp Kohl

Huang Bin

Stephen Stults

Feb 12, 2005 Pricing and Branding on the Internet

Pricing and Branding on the Internet

We are a group of business partners trying to determine an adequate business model for our online venture in China.

During this process we are discussing some models prevalent in the United States around 5 years ago, during the Internet boom…

Feb 12, 2005 Pricing and Branding on the Internet

Pricing and Branding on the Internet

• Brand Evolution: Some argue brands will become a more important factor in the online world, some believe they will have less importance because of increased information availability

• Pricing: Increased competition through the advantages of the internet are driving prices down. Yet studies suggest that product price is the attribute least correlated with a repeat online purchase.

Feb 12, 2005 Pricing and Branding on the Internet

Amazon.com

• Brand Strategy: Customer Obsession

• Personalization through extensive interaction with customers

• Expenditure on brand-building

• Aggressive growth strategy

• Price Strategy: Low price, but not necessarily the lowest one

Feb 12, 2005 Pricing and Branding on the Internet

Amazon.com

Problems faced:

• More customers served results in more costs and losses

• Competition from “brick and mortar” stores

Feb 12, 2005 Pricing and Branding on the Internet

Barnes & Noble, Inc.

• Barnes & Noble has been rankedthe No. 1 retail brand for quality inAmerica for the last three consecutiveyears by Harris Interactive®.

• Barnesandnoble.com is the No. 1 brand among e-commerce companies according to the latest EquiTrend® survey by Harris Interactive®.

Feb 12, 2005 Pricing and Branding on the Internet

Barnesandnoble.com: A Brief History

• In May 1997, Barnesandnoble.com was launched as the Internet arm of the bricks-and-mortar bookseller Barnes & Noble

• Two years later, Barnesandnoble.com was spun off, with Barnes & Noble and Bertelsmann each owning approximately 40 percent of the company

• The company went public in May 1999, raising $421.6 million, the largest Internet IPO at the time

Feb 12, 2005 Pricing and Branding on the Internet

Barnesandnoble.com: Branding & Positioning

• Barnesandnoble.com sells books, magazines, CDs, videos, software and opened an online music store in July of 1999

• Does not go beyond the bandwidth of its brand, focus on “products that can be digitized”

“We are not going to sell pet food.”

Feb 12, 2005 Pricing and Branding on the Internet

Buy.com: “The Lowest Prices on Earth!”

• Features a Low Price Guarantee (10% lower than Top 3 Competitors)

• Initial priority not to make money, but to build a brand and to accumulate a huge customer database

• Plans to be profitable through a variety of collateral revenue streams:

• Advertising• Installation & Maintenance of higher-end products• Shipping Fees

• Virtual Strategy: No warehouses, Buy.com takes ownership yet not possession of the products it sells (unlike Amazon)

Feb 12, 2005 Pricing and Branding on the Internet

Buy.com: Possible Issues

• Reliance on Advertising Revenue• Saturation and decline in response rates are pushing down the prices• Clientele consists mainly of “bottom feeders”, less attractive to advertisers

• Buy.com might overestimate consumer price sensitivity

• Brand Loyalty: Dependency on being the price leader• Once prices go up, consumers will look for other sources

• Poor reputation for order processing, order fulfillment and customer service

Feb 12, 2005 Pricing and Branding on the Internet

MobShop: Pooling Consumers’ purchasing power

• MobShop methodology effectively transfers power from the supplier to the buyer

• MobShop encourages buyers and sellers to cooperate to extract the greatest value possible from volume sales

• Main sales pitch to suppliers is the ability to reach more customers without incurring additional incremental acquistion costs

• The underlying assumption is that consumers will be willing to wait before purchasing a product at a reduced price

Feb 12, 2005 Pricing and Branding on the Internet

Priceline.com: “Name Your Price!”

• Main Businesses: Selling of Airline Tickets, Hotel bookings, and Loans

• 2004: Sales of $914 million, a 5.9% increase

NI of $31.5 million, an increase of 164.7%

Feb 12, 2005 Pricing and Branding on the Internet

Priceline.com: Pro’s and Con’s

Pro’s:

• Good way to attract customers• Can be applied to other industries• Helps suppliers to sell unused capacity without disrupting price structure

Con’s:

• Not the most user friendly experience• Only targets small group of consumers

Feb 12, 2005 Pricing and Branding on the Internet

MySimon.com: Price Comparison Search

Compares prices for almost anything sold over the internet:

• Linked to 2,600 merchants

• Products in more than 250 product categories

• Can let others co-brand the service, expanding its reach

• Like the YellowPages, merchants pay for ads next to results

Feb 12, 2005 Pricing and Branding on the Internet

MySimon.com: Pro’s & Con’s

Pro’s:

• Large target market with 22% of online shoppers comparing prices before buying

• Can track wealth of consumer behavior

Con’s:

• Sites may be reluctant to have their prices compared

• Price is not always most important factor of purchases

Feb 12, 2005 Pricing and Branding on the Internet

Questions to the Audience:

From your own experience, how important are pricing and branding for you when shopping online? Any specific examples?

Which one of the models presented do you consider most applicable for the Chinese market?